Beige Book Report: Philadelphia
March 12, 1975
Economic activity in the Third District remains mostly unchanged in March from February. Manufacturers report no change in new orders, shipments, and unemployment, but are optimistic for the outlook six months ahead. Our retailers report continued declines in sales; however, the outlook this summer from resort business at the New Jersey shore is strong. The outlook for prices suggests some easing of inflationary pressures. Area bankers are somewhat confused about what the Fed and other regulatory authorities want in terms of loan policy, but loan levels remain flat.
According to this month's business outlook survey of manufacturers in the Third District, industrial activity remains about the same as it was in February. However, "no change" is an improvement, compared with recent months. In November, almost 90 percent of the respondents reported a decrease in the general level of business activity. However, as of this month, only 18 percent of the businessmen report a decrease in the level of activity. Area businessmen are more bullish for the fall, though. Almost 80 percent of the respondents expect the general level of Third District business activity to pick up, and three quarters anticipate that this upward trend will be reflected in increased volume for their own firms. Despite this glimmer of new optimism, however, capital investment plans six months out remain about the same. Our businessmen don't intend to increase spending plans until they have a firmer grip on the outlook.
Employment levels are also flat in March, compared with a month earlier. Half of the respondents report no change in the average number of employees, and three fourths report no change in the length of the workweek. In addition, manufacturers expect little change in their work force and the length of the workweek through September, despite hopes for increased output. This lack of increase in the size of the work force will likely spell continued high unemployment in the region, as the total labor force continues to grow.
Area retailers are harder hit this month than the rest of the region. For the second month in a row, dollar sales are again running slightly below last year's levels, and retailers are continuing their "no hire" policy. Retailers are optimistic though that, if warm weather comes soon, sales may be up by 2 or 3 percent over last year despite the tendency for early Easters to dampen holiday sales. Retailers are concerned about the impact of a tax cut on sales. They had hoped the President's proposed tax rebate might boost sales. However, a survey of Delaware Valley residents shows that only a minority of taxpayers anticipate making purchases they would not normally make. Most residents plan to use the additional funds to pay off existing debt or to save it, according to the survey.
In contrast to area retail sales, early bookings for summer vacations at the New Jersey shore show a bullish trend. A survey of rental agents at shore points found a high rate of renewals for shore homes and apartments and strong demand for one-time rentals. The explanation apparently is that vacationers will be staying closer to home this summer, as the cost of vacations continues to climb and jobs are more precarious.
On the price front, the inflationary pressures that have been plaguing the regional economy may be easing somewhat. Three fourths of the respondents report no change in the prices they must pay for raw materials as well as in the prices they receive for finished goods. Manufacturers look for a continued easing of inflation during the next six months.
Area bankers report conflicting signals about what they regard as appropriate loan policy. While most Philadelphia banks have been holding down loan levels, partly on a strictly voluntary basis and partly because they think that is what the regulators want, some confusion exists following Governor Sheehan's speech in New York in which he implied that the Fed is no longer advocating a restrictive loan policy. Some bankers in Philadelphia expressed the need for the Comptroller and the Fed to "get together" to develop a consistent policy stance. Several banks report that they would anticipate few problems in increasing loan levels with quality customers. One large Philadelphia bank, however, reports that Governor Sheehan's remarks mirrored those of Governor Coldwell's when he was in town recently and that they are already pursuing a looser loan policy. General loan levels, however, remain essentially flat at area banks, and demand deposit levels are down slightly from last month.