Beige Book Report: Philadelphia
August 11, 1976
Economic conditions in the Third District are improving, but the pace of improvement is somewhat uneven. Retail activity is mixed, while the manufacturing sector continues to expand. New orders, shipments, and employment are higher this month, while inventories in manufacturing are lower. The longer term outlook in both retailing and manufacturing is still optimistic but less so than in previous months. Reports of higher prices are less widespread than in July. There is brisk activity in the market for existing housing but very little recovery in new construction. Bankers report that weakness in corporate loan demand is spurring requests by business borrowers for concessions on loan terms.
District manufacturers, responding to the latest business outlook survey, report a higher level of activity than last month. One third of the businessmen surveyed see an improvement in overall business conditions. Increases in new orders are reported by two fifths of those polled, and a similar proportion say that shipments have increased as well. Neither of these indicators showed any increase last month. At the same time, work forces are larger at 16 percent of the firms surveyed, while the average workweek is unchanged. One key area showing no increase is inventories, which are slightly lower this month after holding steady in July.
The outlook in manufacturing for the next six months is for further expansion, although projections of gains are not so widespread as in previous surveys. Of the executives polled, three out of five look for better business conditions over the next two quarters. This is down from last month, when three out of four respondents projected improvement six months out, and well below the monthly average (four out of five) for the first seven months of this year. Specific gains are expected in new orders, shipments, and employment, but for each of these barometers the proportion of respondents anticipating increases is substantially below the levels of the recent past. In addition to expansion in these categories, the average workweek and inventories are each expected to increase over the period. At the same time, 40 percent of the manufacturers surveyed plan to hike their spending for plant and equipment, up somewhat from last month.
With respect to prices, 46 percent of the respondents indicate that they are paying higher prices for their supplies. This is down from last month when 57 percent were reporting increases. At the same time, 27 percent report price hikes for their finished products, about the same as in July. By February, roughly three out of four expect to be paying more for their inputs and charging higher prices for the products they sell. Retailers report only slight price increases by suppliers and attribute this, in part, to the uncertainty about retail sales prospects down the road.
Reports on area retail activity are mixed. Some merchants indicate that current sales show little or no growth over the same period last year, while others note increases of 9 to 10 percent. Almost all of the retailers contacted, including some with 9 to 10 percent gains, say that current sales volumes are falling short of the levels they expected.
Major appliances and big-ticket furniture items are reported to be particularly soft, while fashion accessories and recreational equipment are singled out as strong sellers. Merchants note that price markdowns on seasonal items occurred earlier than usual this year, and they feel that these have helped generate a sizable chunk of current sales. According to one retailer, "we've reduced prices on seasonal items in the latest period in hopes of avoiding bigger markdowns in the next period". All of the retailers contacted look for a strong September, but several are reconsidering their prospects and buying plans for later in the year. According to one merchant, "we used to be cocky about the fall—now we're just confident". Yet another feels that, "if our December sales this year just equal last year's, we'll have nothing to cry about".
The residential housing market in the area is reported to be very active for existing housing, but only slight recovery is taking place in new construction. There are signs that the rental market in the area is tightening somewhat, which may open the way for a few new multifamily units. By and large, however, the outlook is for no substantial increase in new construction over the near term. One mutual savings bank official notes that availability of funds is good and that mortgage rates have declined recently. This official expects rates to decline further in the near future before moving upward by late fall. He even sees the possibility, although remote, of a drop in rates paid on savings if short-term money market rates decline further.
Bankers in the District report that, while consumer loans are increasing, business loan volume remains weak. Most banks are attempting to attract consumer business through either merchandise promotions, lower rates, or extended maturities. The results, however, are "not as good as expected". On the business side, there are no reported signs of any pickup in loan demand. Several bankers do note slightly increased pressure from corporate customers for concessions on loan terms. More requests for fixed rates, as well as early attempts to renegotiate terms on revolving credits, are reported. For the most part, bankers indicate that these requests have been denied. Several bankers feel, however, that, if business loan demand remains weak, they may find it more difficult to deny such requests in the future.