August 13, 1975
Business activity in the Fifth District appears to have picked up further in recent weeks, although there is as yet little evidence of any significant momentum in the recovery. The diffusion of responses in our latest survey of manufacturers suggests an increase in order backlogs for the first time in over a year, with further recent increases in new orders, shipments, and employment. Retailers report additional sales gains, although big-ticket items continue to move sluggishly relative to total sales. The inventory adjustment in the trade sector appears to have been completed, but manufacturers continue to pare down stocks of both materials and finished goods. Business loan demand at District banks appears to have increased lately, and consumer loans have definitely picked up. Meanwhile, the flow of time and savings deposits into banks and other thrift institutions has abated. Our latest survey shows a further significant improvement in business confidence. More than two thirds of the respondents now expect business conditions to improve both nationally and locally over the next six months.
Responses to the latest survey of District manufacturers show continued improvement in most areas of activity, but the improvement is by no means general. The latest increases in orders and shipments reflect, for the most part, growing strength in textiles, furniture, and a few other lines. Activity in the primary metals and machinery industries remains sluggish. While inventories of both materials and finished goods continue to decline, nearly half the respondents still view current levels as excessive. Employment in manufacturing has apparently improved significantly, and this has contributed to a general improvement in District labor market conditions. Manufacturing respondents reporting increases in employment outnumber those reporting decreases by two to one. State unemployment rates are continuing to fall as layoffs are terminated and new hires are resumed at a more normal rate. It now appears that unemployment has been declining since April or May. Survey respondents, as well as other District sources, also continue to report increases in the length of the workweek.
The price picture has deteriorated lately. In the latest survey, a large number of manufacturers reported paying and receiving higher prices than have done so at any time this year. About one half paid and almost one third received higher prices. Meanwhile, almost one half report higher average hourly earnings by their employees.
Manufacturing inventories remain well above desired levels. Over 40 percent of the manufacturers surveyed view present inventory levels and current plant and equipment capacity as excessive. Nevertheless, an overwhelming majority felt current expansion plans are about right. Concerning the outlook for the next six months, almost three fourths of the respondents expect improvements in the level of production in their own firms as well as in the level of business activity nationally. Almost as many foresee an improvement in business activity in their respective market areas.
The July survey of District retailers shows little change from recent months. Sales continue to improve, but big-ticket items remain weak relative to total sales. Inventories at the retail level showed little change and are apparently at satisfactory levels despite the third consecutive month of improved sales. Employment at retail establishments was essentially unchanged. Price increases at the retail level seem to have resumed, and employee compensation is continuing to rise. Retailers seem to be satisfied with the current number and size of their outlets, although 60 percent expect business conditions to improve generally over the next six months.
Fifth District bankers now anticipate that loan demand will soon begin to recover from its protracted decline. In recent weeks these expectations appear to have been realized, particularly in the consumer loan area. Commercial lending officers still see signs of a potential resurgence in business loan demand, but this potential has not fully shown up on bank ledgers. District banks are nonetheless preparing for this intensified demand by structuring their investment portfolios in favor of short-term securities. Commercial and industrial loans increased at an annual rate of over 9 percent in July, with working capital loans to the textile industry playing an important part in this increase. Bank real estate loans have not shown signs of recovery, and it appears that much of the increased activity in mortgage lending has been concentrated at savings and loan associations. Meanwhile, the flow of time deposits into District banks and other institutions dropped off significantly.
District farmers' demand for both short- and long-term credit appears to have grown substantially during the first half of 1975. The volume of loans outstanding as of June 30 was 20 percent above a year ago at PCA's and 31 percent larger at the Federal Land Banks. With farm income estimates for the first quarter revised upward, the District's January-May cash receipts from farm marketings were only 4 percent below a year earlier.
This season's flue-cured tobacco prices, by belts, are averaging from 3 to 7 percent below a year ago. Quality of the crop is lower than in 1974, yet leaf firms are apparently being more discriminating over quality tobacco. Tobacco growers, meanwhile, have a large investment in the 1975 crop, with production costs estimated to be at least 7 cents a pound greater than in 1974.