Beige Book Report: Richmond
December 10, 1975
Once again the monthly survey of Fifth District businesses has failed to confirm any strong trends. Manufacturers' new orders and shipments continued to increase during the past month, but in neither case were the increases as widespread as in the three previous months. Backlogs and inventories showed little change in November, with inventories apparently remaining somewhat higher than desired. Employment and weekly hours were also unchanged among manufacturing respondents, while price movements continued on the up side. One-third of the respondents view current plant and equipment capacity as excessive, but nearly all feel current expansion plans are about right. Among retailers surveyed, sales increased in November, but sales of big-ticket items relative to total sales declined. Retail inventories showed little change during the month, and all respondents now feel current levels are about right. Fifth District banks experienced healthy deposit flows and reduced their reliance on borrowed funds in November. Asset expansion was centered in the lending area, with seasonal demands for business credit continuing to account for most of the activity. There is evidence of a greater willingness to make loans of various types, and investments are being concentrated in the shorter maturity ranges. The November 1 crop report indicates that there will be no record harvests in the District in 1975. The cotton crop, in fact, promises to be the smallest since records began in 1866.
The December survey of manufacturers suggests an overall increase in shipments from a month earlier, but reports of increases were less common and those of declines more common than in November. Much the same picture emerged in relation to the volume of new orders, a general increase but less widespread than in recent months. Little change is apparent in the level of backlogs or of inventories. In fact, survey responses suggest greater stability in inventory levels than in any of the last six months. Increases in the number of employees and of hours worked per week also seem to have tapered off in the past month. On the other hand, reports of price increases became more widespread last month than at any time this year.
Most of the manufacturers surveyed feel current inventory levels are about right, but approximately one-fourth continue to view current levels as excessive. One-third of the respondents feel plant and equipment capacity is currently in excess, but none believe that current capital plans should be cut back. Fewer than one in ten think current expansion plans should be enlarged. Expectations for the level of business activity remain essentially optimistic. A majority of respondents expect business activity nationally and in their respective market areas to improve over the next six months, while one-half expect the level of production in their own firms to improve.
Among District retailers surveyed, sales were up over the month, while inventories showed little change. Sales of big-ticket items relative to total sales declined somewhat after increasing in October. Employment in retailing declined in November, but increases in employee compensation were reported by all but one of the respondents. Price increases were also reported by most. Inventory levels have apparently been brought into line with desired levels, and 80 percent of the retailers view the current number and size of their outlets as about right. Once again, optimism is widespread as most retailers expect the level of business activity nationally, locally, and in their own firms to improve over the next six months.
In the banking sector, demand deposits of weekly reporting banks increased substantially during the month, and lesser but still significant gains were posted in time deposits. Purchases of CD's also increased, and outstandings are now 3 percent above the year ago level. Reliance on borrowed funds is far below the recent norm, with discount window borrowings of member banks falling close to zero. Average daily net purchases of Federal funds by member banks over the first three weeks of November fell by 30 percent from the previous month and are now at their lowest level since June.
Business loans at weekly reporting banks increased at an annual rate of about 6 percent in November, reflecting advances to retailers and agricultural processors and increased purchases of bankers' acceptances. Commercial and industrial loans are now about 6 percent below year ago levels. Small increases in consumer loans were offset by declines in the real estate area. The November survey of changes in lending practices indicates that a third of the reporting banks expect moderately stronger business loan demand over the next three months. Business lending terms remain pretty much unchanged at District banks, except for some easing of interest rates. Interest in and willingness to make all types of loans has increased, especially in the consumer area. Investment assets of weekly reporting banks declined by 1.3 percent from the previous month, as substantial increases in U.S. Government securities were more than offset by reductions in municipal portfolios. Investment in Treasury bills has been particularly strong.
District cash farm income continued to improve during September and for the first three quarters of the year recorded a 4-percent gain over the same period last year. The biggest improvement occurred in livestock receipts. Marketing of the 1975 crop of flue-cured tobacco was highlighted by lower prices and poorer quality than in 1974. The season average price dropped 5 percent, or $5.47 per hundred, below last year's record. Volume was up sharply (17 percent), however, so the value of gross sales was 11 percent or $126.3 million above a year ago.