July 14, 1976
Responses to our latest survey of Fifth District business conditions suggest a decided pause in the current expansion. Manufacturers reports suggest a decline in new orders in June, with shipments apparently showing no change and backlogs of orders falling off. Inventories of finished goods were reported to be larger than a month earlier and current levels are considered excessive by nearly one-third of our respondents. Despite this apparent slackening in the rate of advance, District manufacturers remain optimistic. Expectations of continued gains in the level of business activity are not quite as widespread as in some recent months, but over one-half of our manufacturing respondents expect further improvement over the next six months. Beyond some normal lengthening of lead times, there are no signs of any difficulties arising with respect to the availability of materials and supplies. Reports from retailers indicate a similar pattern of activity: sluggish sales, a relative decline in sales of big ticket items, and further expansion of inventories. Large District banks report only nominal growth of commercial and industrial loan volume in recent weeks. In the agricultural sector, the general condition of most major field crops in the District has improved in recent weeks in response to much-needed rain and warmer weather.
Of manufacturers responding to our survey, one-half report no change in shipments over the past month. The remaining one-half are evenly divided between reporting increases and decreases. Meanwhile, over 40 percent indicate reduced volume of new orders and over one-third report declines in backlogs of orders. More than one-third also reported increased inventories of finished goods, while stocks of materials were apparently unchanged. Inventory levels are now considered excessive by nearly one-third of our manufacturing respondents, while nearly as many view current plant and equipment capacity in excess. Nonetheless, employment continues to rise in most sectors of the District economy, and reports of higher prices are widespread.
Among individual industries textile, apparel, chemical, and furniture manufacturers seem to have been typical, experiencing some weakness in the volume of new orders. Respondents from the primary metals industry report little change from a month ago, while producers of machinery and equipment showed some gains in this area. Inventories are considered excessive in furniture and fixtures, while in most other industries a majority of respondents consider current levels about right. There are individual respondents in virtually every industry surveyed, however, who feel current stocks are excessive.
Citing cooler than usual weather and a general lack of consumer confidence, retailers responding to our survey report marginally weaker sales in June and the first relative decline in sales of big ticket items since December. Reports suggest a continuing spate of bargain hunting, but with consumers retaining an eye for quality. Rather widespread inventory accumulation and the recent sluggish sales pace have left over 70 percent of our retail respondents with what they feel are excessive inventories. Price increases at the retail level are reported with greater frequency than in recent months, although most respondents report no change in prices, received or paid, since May. Retailers remain optimistic about the level of business activity, particularly with respect to sales in their own firms. Nearly 60 percent expect further improvement in the level of activity nationally and in their individual market areas over the next six months, but over 80 percent expect sales in their own firms to improve over that time period.
The availability of supplies and materials does not appear to be presenting any serious problems in the Fifth District. Most of our contacts in industry report at worst some lengthening of lead time, but even that is considered normal. Most firms continue to report that their orders are being met promptly and that they anticipate no difficulties in meeting orders for their own products. Only one respondent, an apparel manufacturer, reported operations being hampered by the performance of his key suppliers. One manufacturer mentioned the rubber strike, which he feels would adversely affect operations by the end of July.
Despite seasonal strength in business credit demand from agriculture-related industry, total C&I loan volume at large District banks has shown only nominal growth in recent weeks. According to area bankers, continued cyclical weakness in business loans is due to two basic factors. First, local industry reaction to the recent slowing in nondurable sales has been swift and conservative. In North Carolina, for example, the textile industry is said to have quickly tightened production to forestall unwanted inventory accumulation. Second, there is almost complete lack of term loan requests for purposes of business fixed investment. Consequently, loan volume is still below desired levels. Consumer lending is still advancing, but not as rapidly as in recent months. This seems to hold for both revolving credits and direct installment loans. Large District S&Ls generally report that the demand for mortgage funds remains very strong.
In the agricultural sector, earnings from farm marketings continue to run above a year ago. But the 2 percent gain in the District during January-April was much smaller than the 10 percent increase recorded nationally. The corn outlook is especially promising, with prospects for a record harvest in North Carolina. However, excessive soil moisture is causing problems for crop farmers in many areas of South Carolina.