Beige Book Report: Richmond
March 12, 1975
Results of the February survey of Fifth District businesses give no indication of any significant change in business conditions but rather reveal the continuation of a broad decline in activity. Generally, unemployment rates have continued to rise, reaching record levels in many areas. Whereas in recent months pockets of severe unemployment were notable exceptions, the noteworthy areas are now those with moderate rates of joblessness. Survey responses suggest further declines in manufacturers' shipments, orders, and backlogs, as well as some further accumulation of finished goods inventories. More plant closings and layoffs have occurred in a wide range of industries with the paper and cardboard packaging materials industry becoming a prominent participant. One change indicated by the survey responses concerns a break in the pervasive mood of pessimism displayed during the past few months. Responses suggest more businessmen now see "a light at the end of the tunnel".
Recent surveys of Fifth District banks indicate continued easing of credit demands and some greater willingness, on the part of banks, to lend to qualified customers. Bank sources of funds are changing somewhat, as declines in demand deposits are being partially offset by inflows of consumer time deposits.
Manufacturers responding to our latest survey reveal continued weakness in shipments and new orders and further declines in backlogs of orders. Meanwhile, inventories of materials remain stable, although further accumulation of finished goods is indicated. Over 46 percent of the manufacturers surveyed reported increases in finished goods inventories, while one out of three reports a reduction in inventories of materials. Almost 60 percent report declines in the number of employees as well as in the hours worked per week. For the second consecutive month, relatively few manufacturers report increases in employee compensation, suggesting some decline in the rate of increase.
The February survey further reflects some continued softness in prices received, and perhaps some early indication that prices paid by the manufacturers are no longer showing the widespread increases which were prevalent in recent months. Over 60 percent of the manufacturers surveyed feel current inventory levels are too high, and over 50 percent view current plant and equipment capacity as excessive. Nevertheless, over 80 percent feel current expansion plans are about right, while only one out of nine thinks expansion plans should be cut back.
District retailers responding to the February survey offer much the same picture. Little change in the dollar volume of sales is indicated, although the slump in sales of big-ticket items continues. Inventory levels appear to have stabilized, and concern over inventory levels seems to be diminishing. Employment by retailers declined further in February, but survey responses indicate further increases in employment hourly compensation. The suggestions of price weakness offered by the manufacturers are not yet being duplicated by the retailers. Although price increases may not be so widespread as in recent months, the diffusion of response suggests the upward trend persists.
If there is any discernible change indicated by the February survey, it is in the area of respondents' expectations for the next six months. It is clear that the pessimism prevailing over the past half year has begun to dissipate. Among retailers, 40 percent now expect improvements in the level of business activity over the next six months and, perhaps more significant, not one respondent to the survey of retailers foresees a worsening of business over that time period. Among manufacturers, the shift is not quite so dramatic, but almost 40 percent of the respondents expect the level of production in their own firms to improve over the coming six months.
Recent surveys indicate that current economic conditions are having a definite impact on Fifth District banks, affecting both their sources and uses of funds. Credit demands continue to ease considerably, and some banks are developing a greater willingness to lend to qualified customers. Consumer-type time and savings deposits remain strong, and increases are partially offsetting declines in demand deposits. Competition for these types of deposits remains strong, and most banks surveyed report paying maximum permissible interest rates on them. Holdings of negotiable certificates of deposit (CDs) at weekly reporting banks have fallen steadily since the beginning of the year. Member banks continue to place less reliance upon the discount window, average borrowings in February having declined for the eighth straight month. At weekly reporting banks, the level of loans, including both business and consumer types, continued to decline across a broad range in February, and most bankers expect the demand for business loans to weaken further in coming months. There is also concern that high prices on homes and durables will keep consumer lending depressed.
District farmers' cash receipts from farm marketings in 1974 climbed to a record $5.3 billion, up 10 percent over the previous high set in 1973. Crop receipts, up 25 percent, paced the advance, but a 6 percent decline in receipts from livestock was partially offsetting. Last year's large jump in farm production expenses, however, will most likely more than offset the gain in cash income and result in a drop in net farm income.