February 12, 1975
Economic activity in the Third District continues its slowdown. Manufacturers report declines in new orders and unfilled orders in February, but over half are optimistic for the outlook 6 months ahead. The labor force, too, is feeling the effects of a declining regional economy. And, with the size of the labor force continuing to grow, an even higher level of unemployment in the region can be expected in the months ahead. Area retail sales also were severely damaged in January, and appear to be equally hard hit in February. Capital spending plans in the retail sector have been cutback as a result, but in manufacturing, most executives don't plan to alter current spending plans for the next 6 months. The outlook for prices remains bleak this month, as manufacturers post additional price hikes with expectations that this trend will continue for the next 6 months. And, area bankers are feeling the pinch, as loan levels and deposits drop off.
Manufacturers in the Third District responding to this month's business outlook survey report that business activity is continuing to slow down in the regional economy. Almost half of the respondents report a general decline in business activity in February. And, in their own firms, this condition is repeated. Two out of five businessmen report declines in new orders, and two out of three are posting decreases in unfilled orders. However, these manufacturers are more bullish on the future outlook. Well over half of the executives polled expect the general level of business activity to pick up by August. And, an equal number expect this general increase in the region to translate into an increase in both new orders and shipments for their own firms. Manufacturers remain mixed in their outlook for any increase in capital investment plans 6 months out, with nearly half of the respondents content to let their spending plans remain the same.
This general slowdown in the manufacturing sector is also having an effect on the labor force in the Third District. While 60 percent of the executives are maintaining a stable workforce and workweek, almost a third of the respondents report a decrease in the average number of employees and the average length of the workweek. On balance, slightly more manufacturers expect to increase their employment levels by August than expect to decrease them, but over half anticipate no change in these key employment indicators. With a new crop of graduates moving into the labor force in late spring, the regional economy will likely experience higher unemployment in the months ahead.
Our retailers too, are experiencing the effects of the declining regional economy, although the number of transactions had fallen below the level of a year ago January, retail executives have reported that the dollar volume of sales has been keeping pace with previous years. However, as of February, department store sales as measured in dollars as well as in the number of transactions, fell significantly below last year's level. And, the large discount stores, such as Sears and Penneys, were especially hard hit as they were caught with large inventories on hand. One major retailer in the area reports a policy decision to decrease employment levels in its stores through attrition, with several others hinting at similar plans. And, all retailers report that capital expenditure plans have been severely cut back. As for spring sales and the outlook for the next several months, retailers expect ever softening sales as prices continue to rise and the general level of the economy continues to decline.
Prices in the manufacturing sector, too, increased in February. Over one third of the executives polled are facing higher prices on raw materials this month than they experienced last month. And 50 percent expect to be paying even higher prices by August.
Loans at most banks are below last year's level. And, the larger Philadelphia banks report a slight softening in demand. Although most banks are generally moving to a less restrictive loan policy than they have followed in the last several months, they are moving cautiously. The prospects of large defaults coupled with difficulty in collections in a declining economy are weighing heavily in their decision. Demand deposit growth is generally disappointing and only savings instruments guaranteeing 7 percent interest or better are attracting new time deposits.