July 9, 1975
Business conditions in the Third District showed little change, on average, during the past month. Area manufacturers report that their new orders held steady and inventories were reduced further, but employment was off slightly and price movements could be squeezing profits. These businessmen continue to be optimistic, however, about business conditions over the next two quarters. They expect new orders to be up, inventories to be trimmed still more, and workforces to be expanded. Nevertheless, capital spending plans remain conservative, and higher prices are anticipated. Area retailers report higher sales volumes but see no well-defined trends yet. Bankers in the region are experiencing steady inflows of savings deposits but still face flat loan demand.
Third District manufacturers, responding to this month's business outlook survey, report steady overall business conditions, with 80 percent of those surveyed indicating no change in general business activity over last month. Furthermore, there is some indication that the economic slide has been arrested. During June, only 10 percent of the respondents experienced declining business activity compared to almost 60 percent last January. While new orders were significantly higher in May, two-thirds of the executives surveyed report no change during June. Moreover, inventory liquidation is continuing with half of the manufacturers reporting lower stocks of goods on hand. Respondents listing cutbacks in their workforces still outnumber those reporting increases, but the length of the workweek is holding steady, with almost 90 percent indicating no change in the last month.
The economic outlook through the end of the year remains optimistic, with more than 80 percent of those polled expecting an improvement in business activity. Over two-thirds of these executives anticipate an increase in new orders, and a bit more pruning of inventories is expected. In addition, nearly half of these manufacturers expect to add employees, and some lengthening in the average workweek is foreseen. Despite the optimistic outlook, however, spending plans for plant and equipment are still guarded. Almost two-thirds of the manufacturers polled plan no change in capital expenditures by the beginning of the Bicentennial year.
Area manufacturers report that they are currently paying higher prices for their supplies but, on average, receiving lower prices for their finished products. However, the bulk of these executives expect the next six months to bring higher prices for both their supplies and their finished products. In fact, none of the manufacturers surveyed reported paying lower prices this month, and none expect to be paying lower ones by next January.
Merchants in the area report that retail sales are running slightly ahead of their projections. While none of the retailers contacted would ascribe very much of this to Federal tax rebates, one felt that most of the improvement stemmed from some amelioration in consumer attitudes toward spending. One retailer noted that his stores sales forecasts were being revised in a somewhat more optimistic vein through September, but another felt that no definite trends were evident yet and that sales could go either way. All of the merchants contacted report better delivery times for hard goods, especially furniture. It is felt that backlogs have been worked down, and with shorter delivery times, retailers expect to continue their current conservative posture on inventories.
Retail executives report significant moderation in the prices they pay and a stabilizing trend in the prices they charge. One expects to be paying substantially higher prices for man-made fibers but does not see this hitting the consumer at the retail level for another 6-8 months. These merchants look for prices to be climbing at a 4-6 percent clip by year-end and do not expect the rate to exceed 6 percent in 1976. They look for the economy to recover gradually and the unemployment rate to come down only slowly.
Bankers in the District report steady inflows of savings but are mixed in their experiences with demand deposits. The reports range from "a good influx" to "somewhat disappointing." There is general agreement that loan demand is still flat, and area bankers expect level or slightly lower loan demand for the balance of the summer. Most report that they are seeking short-term arrangements with new customers and they are generally trying to shorten maturities in their asset structure. One banker indicated relaxed constraints on availability of funds at his bank but no easing in the price or quality constraints for loans. There is little expectation that the prime rate will go any lower, and all of the bankers contacted felt that interest rates were near bottom. The rise in short-term rates in late June received mixed interpretations. While some bankers saw it as a definite tightening move by the Fed, others did not know what to make of it.
Area bankers expect the economy to recover gradually with interest rates moving upward at a modest pace. In addition, there is little anticipation of strong inflationary pressures during recovery. The financial executives contacted expect inflation to stay in the 5-6 percent range through most of 1976. But there was some concern that the Fed would be under political pressure next year to try to bring down the unemployment rate more rapidly with the result that inflation might be rekindled further down the road.