March 10, 1976
After a two-month pause, the business recovery in the Fifth District seems to have resumed in February. Our latest survey of District business conditions suggests a moderate but decided upturn in the level of business activity over the past month. Manufacturing respondents report increased inventories, shipments, and new orders, with order backlogs rising for the first time since fall. Slight declines in employment were reported, however, by both manufacturers and retailers, and both groups also indicated continuing upward pressures in prices. Despite the apparent improvement in business activity, many manufacturers continue to view both inventories and plant capacity as excessive. A majority of our respondents, manufacturing and retail, remain essentially optimistic, expecting improvements in business nationally, locally, and within their own firms over the next six months. The comments of our directors tend to support the generally optimistic tone of the survey responses.
Just under a third of manufacturers in the latest survey reported increases in shipments, about twice as many as reported declines. Reports on new orders split in much the same proportion. The latest improvements were spread over most of the District's principal industries. Order backlogs registered a small gain, after declining in each of the last monthly surveys. Manufacturing inventories of both materials and finished goods also increased very slightly in February, the first hint of an increase in materials inventories in over a year. Nearly one third of the manufacturers surveyed still view current inventory levels as excessive. While the proportion of respondents holding this view declined from a month earlier, it has not yet reached the low levels of last fall. In addition, one manufacturer in three still views current plant and equipment capacity as excessive.
Survey responses suggest a decline in manufacturing employment, making February the third consecutive month without an increase. The diffusion of responses suggests a slight increase in manufacturing hours worked per week, but apparently not sufficient to offset the decline in employment. Of the manufacturing respondents, 40 percent reported paying—and nearly 30 percent report receiving—higher prices in February than in the month earlier. Increases in employee compensation, however, were less widespread than in most recent months.
For the third consecutive month, retailers were unanimous in reporting increased sales. Sales of big-ticket items relative to total sales also increased. There was some inventory accumulation on the part of retail respondents, who are apparently trying to bring inventories back from what was considered inadequate levels only a month ago. Employment declined at District retailers, but probably not by more than the normal seasonal change. Price increases, including employee compensation, were widespread among retailers.
Increased business activity has still not had a significant impact on bank balance sheets in the Fifth District. With isolated exceptions, the demand for bank credit continues weak. Loans and investments continue to decline. The strong upward trend in consumer time and savings deposits, however, continues unabated. Business lending may have just offset the seasonal trough in commercial and industrial loans that occurs in February. One large Virginia bank reports that its commercial loans have declined by 12 percent in the past three months. A Branch director, however, notes that in his area total loans and commercial loans have improved recently and that there is a slight upward trend in the demand for credit. The portfolio corrections made over the past months have apparently made a number of banks eager lenders, but the credit review process remains very strict. Results of the February survey of changes in bank lending practices indicate that District bankers are generally pessimistic about the prospects for business loan demand in the months ahead. The survey also shows a substantial increase in willingness to make consumer and single-family mortgage loans.
District farmers total cash receipts from farm marketing in 1975 showed a 2 percent gain over 1974. Higher prices for livestock and livestock products resulted in a 7 percent increase in livestock receipts, while lower average crop prices and smaller marketings of some crops combined to reduce crop.