Beige Book Report: Richmond
May 12, 1976
Our May survey of Fifth District business conditions shows April to have been another month of widespread upward movement in the level of business activity. Manufacturers surveyed report increased shipments and new orders and larger backlogs of orders in April. Manufacturers' inventories showed little change as more than one-fourth of the respondents continue to view current levels as excessive. Employment continues to increase across the District as indicated by our survey as well as by reports on employment and unemployment in the individual states. District retailers have apparently experienced a dramatic turnaround in their business. Most firms reported increased sales and several characterized the increases as substantial. Sales of big ticket items continued their relative improvement despite the large increase in total sales. The latest available information reveals no significant recovery in business loan applications at District banks. Low credit line utilization, generally below 30 percent, noted by several banks illustrates the extent of weakness in short-tern business lending. With April's dry weather and below-freezing temperatures, small grains, spring-planted crops, and fruit were damaged in wide areas of the District. Replanting of some spring crops has been necessary.
Of the manufacturers responding to our May survey, over 40 percent reported increased shipments in April, while nearly one-half experienced a larger volume of new orders than in March. Backlogs of orders apparently increased somewhat, although fewer respondents reported such increases this month than did so one month ago. Inventories showed little change, a slight increase in stocks of materials being balanced by a small reduction in finished goods. Over one-half of the manufacturers now view current inventory levels as about right, but those feeling current stocks are excessive continued to outnumber those viewing them as inadequate by almost two to one. Gains in shipments and new orders are evident in such industries as textiles, apparel, primary metals, and furniture. While the situation appears to have stabilized in some other industries, including chemicals, responses do not yet suggest any significant improvement. Non-electrical machinery and equipment seems to have leveled off somewhat after some improvement in March, but the electrical equipment group did show some improvement after lagging in recent months.
Nearly one-third of the manufacturers surveyed report expanded employment and longer workweeks in April. Prices also continued to rise during the survey period. Survey responses reveal dwindling dissatisfaction with current plant and equipment capacity. Over three-fourths of the respondents feel current capacity is about right. There remains virtually no sentiment for altering current expansion plans. A substantial majority of the manufacturers surveyed, however, expect continued improvement in the general level of business activity, nationally, locally, and in their respective firms, over the next six months.
The responses of retailers surveyed suggest substantial improvement in business over the past month. Several respondents specifically mentioned the size of the month to month increase in sales calling it the "best ever" or the "best in twenty years." One large chain store responded that "everything is selling." Sales of big ticket items relative to total sales continued to increase despite the sizable gains in total sales. Seventy-five percent of our retail respondents also reported increases in inventories in April. Meanwhile, twenty-five percent of the respondents once again view current inventory levels as excessive. Over one-third, however, feel the current number and size of outlets is now inadequate.
Employment by retailers rose in April as did employee compensation. Over one-half of the respondents feel that level of sales in their firms will continue to improve over the next six months. The others are apparently satisfied with the current level and feel that while it can be sustained, any further improvements are not likely. In general, the retailers, like the manufacturers, expect the general level of business activity to continue to improve.
Of the District banks surveyed in late April none has experienced any significant recovery in business loan applications, either short-term or long-term. Weakness in short-term financing, however, is especially evident in the larger national accounts. The outlook for improvement in business loan demand is uncertain. Most banks are "hopeful" of a turnaround in 3-6 months, and recovery is expected first in the short-term area.
Earnings from farm marketings during the first two months of 1976 ran slightly below a year ago in the District, compared with a gain of about 10 percent nationally. Farmland values rose further during the period March 1975 to February 1976. Unlike the national advance which was about the same as in the previous year, the increase among District states was slower than recent year-to-year gains in Virginia and the Carolinas but the highest on record in Maryland and the second highest in West Virginia.
Reacting to market conditions, District farmers now intend to plant more cotton, corn and other feed grains, but fewer soybeans, than they planned in January. Compared with a year ago, April 1 intentions indicated sizable increases in plantings of corn and cotton but significant cuts in soybean and flue-cured tobacco acreage.