Beige Book Report: Richmond
January 14, 1976
Our January survey of Fifth District business conditions yielded mixed results. Manufacturers' responses indicate little or no change in their level of activity during December, while retailers were unanimous in reporting increased sales. Among manufacturing firms, shipments and new orders were essentially unchanged from the previous month while backlogs of orders were down somewhat. Inventories of both manufacturers and retailers showed little change in December. Inventories at retailers have apparently been brought into line with desired levels, while among manufacturers they remain in excess. Prices, including employee compensation, continued to rise across a broad front. The outlook for business during the next six months remains bright, as most respondents expect improvement over that time period. Our directors also noted improvement in the confidence of consumers as well as of businessmen in the District. Bank credit in the Fifth District advanced moderately in December, with a slight negative movement in loans offset by continued investment in United States Government securities. Gains were posted in both demand and time deposits, and purchases of large certificates of deposit (CDs) showed special strength. District farmers' cash receipts from marketings during January-October 1975 recorded a 3 percent increase over a year earlier, compared with a 3 percent decline nationally.
Of manufacturers responding to our January survey, slightly over 30 percent reported an increase in sales while almost as many reported a decrease. Among individual industries, the increases in shipments were concentrated in textile mill products, apparel, and lumber and wood products. Reductions occurred primarily in chemicals and machinery and equipment. Overall, the volume of new orders looked much the same as shipments, although manufacturers reporting declines slightly outnumbered those reporting increases. Industries showing increases in new orders include primary metals and apparel, while declines were noted in transportation equipment. Overall, machinery and equipment manufacturers showed some decline in new orders, but some firms in this industry reported gains. Backlogs of orders declined somewhat at District manufacturing concerns. Inventories were essentially unchanged, although materials seem to have declined slightly, while finished goods edged upward. One third of our respondents continue to view current inventory levels as excessive.
Responses suggest a slight decline in manufacturing employment, the first since May. Hours worked per week held firm, while employee compensation—in terms of average hourly earnings—rose at nearly one third of the firms responding. Prices paid and received were also up across a broad range. Nearly one third of the manufacturers continue to view current plant and equipment as excessive, but nearly all are satisfied with current expansion plans.
District retailers apparently had a very good Christmas season. One branch director called it "exceptional". All survey respondents reported increased sales in December; one called it the greatest change noted in a number of years. The improvement in total sales has not spread to big-ticket items, however. Retail inventories were unchanged from a month earlier and are now in line with desired levels. Retailers are generally optimistic about the near future, hoping that the recent surge in sales will carry over into 1976.
Commercial and industrial loans at weekly reporting banks declined from November, primarily reflecting seasonal influences such as repayment of loans by retailers. Loans to durable goods manufacturers showed small but steady increases, but these were offset by declines in loans to nondurable goods manufacturers. Business loans in December were 7.7 percent below the year-ago level. Consumer loans recently have advanced at a very gradual rate, while real estate loans here declined. Total investments by weekly reporting banks posted strong gains in December, led by a surge in purchases of Treasury bills and longer maturity Treasury issues. Holdings of municipals fell slightly from November. Total investments in December were 19.5 percent above a year ago, while total assets posted a year-to-year gain of 3.3 percent. Steady gains in time deposits continued during December, and CDs increased by 3.5 percent from the previous month. Demand deposits were 3.2 percent above the year-earlier level. Net purchases of Federal funds by member banks over the first four weeks of December dropped to their lowest level since January 1973. Discount window borrowings by member banks remained at the near zero level reached in November.
In the agricultural sector, a buildup in the inventory of hogs held for breeding purposes and a sizable upturn in intended farrowings during the December 1975-May 1976 period strengthen prospects for larger pork supplies in the second half of 1976. Indications point to a somewhat larger increase in the Fifth District than in the nation.