Beige Book Report: Philadelphia
December 10, 1975
Economic recovery in the Third District has slowed further. In manufacturing, new orders and shipments are down this month, employment is off marginally, and the workweek is unchanged. At the same time, prices paid and received in manufacturing are both higher, although the rise of prices paid for supplies may be moderating. The outlook for the next two quarters is less optimistic than in recent months. Residential construction is weak, but the market for existing housing is active. Retailers report that sales are equal to or above last month's and they are looking for a strong Christmas season. Area bankers report that demand deposits are level and savings accounts are up slightly. In addition, loan volume is reported to be flat.
Manufacturers in the Third District, responding to this month's business outlook survey, report that economic activity is only fractionally greater than it was last month. In each survey from August through November, 40 percent of the respondents reported gains over the previous month. This month, however, only 17 percent indicate improvement, while 69 percent report no change. New orders are down for the first time in seven months, and shipments are off for the first time since July. At the same time, additional inventory liquidation is occurring, with 40 percent of the respondents reporting fewer goods on hand compared to 31 percent last month. Jobs in manufacturing are down slightly, and the workweek is unchanged from last month.
The outlook for the next six months in manufacturing is somewhat less optimistic than in recent months. Of the manufacturers polled, 66 percent anticipate a higher level of economic activity by June. This is the smallest proportion of respondents expecting improvement over the next half-year since last February. The peak was in June when 93 percent expected improved conditions six months out. Nonetheless, manufacturers still look for new orders and shipments to be higher, and a net accumulation of inventories is expected. The workweek is expected to be longer, and more than half of those surveyed plan to add to their work forces over the next two quarters. At the same time, capital expenditures are expected to grow, with more than a third of the respondents planning increases over the period.
Retail executives report that sales are level or up slightly from last month. The majority report that durable goods are selling well. All the merchants contacted are optimistic about Christmas sales, and one expects sales for the month to be 2 percent higher in real terms than last December. Most of the retailers surveyed feel that inventories are in line with sales, but one merchant notes that inventories at his store are above desired levels.
On the price front, manufacturers report that costs of supplies are higher this month, but the pace of the inflation in this sector has moderated since last month. Twenty-nine percent of the respondents to the current survey report paying higher prices for their supplies compared to 52 percent last month. Prices received for goods sold are also higher, with 23 percent reporting increases. The outlook for the next half-year is for additional increases; 94 percent of those surveyed expect to be paying higher prices by June, and 71 percent expect to be receiving higher prices for their finished products. Area retailers report that, in general, the prices they pay and the ones they charge are both moving up but at a slower pace than in recent months.
The market for existing housing is active, but residential construction remains weak. One MSB official notes that the brisk pace in the resale housing market in the Philadelphia area has resulted in mortgage rates that are 15-20 basis points above the U.S. average. Given the current savings inflows, however, he expects no further rise in mortgage rates through March. Another contact cites high unemployment along with little population growth as factors helping to discourage new construction. None of the contacts surveyed expect any recovery in residential construction in the area for at least six months.
Area bankers report that demand deposits are about even with last month, and savings accounts are up slightly. They also indicate that loan volume is essentially flat, and the general outlook is for it to increase gradually through the first quarter. Interest rates are expected to climb moderately next year, and inflation is expected to average around 6 percent. All the bankers contacted indicate that the Federal plan to help New York City will have no effect on the attitude at their bank toward lending to municipalities. But one executive feels that some fiscally sound municipalities have been hampered in their efforts to borrow money by the uncertainty surrounding the situation in New York City. As a result, he feels that the plan may help by removing part of that uncertainty.