Beige Book Report: Richmond
August 11, 1976
Responses to our latest survey of Fifth District manufacturers indicate that activity in July remained essentially stable for the second consecutive month. The pace of improvement appears to have slowed in the second quarter, and since then there has been little change in the level of manufacturers' shipments and some softening in the volume of new orders. Backlogs of orders have declined in each of the last two months, while materials inventories have remained essentially unchanged. Stocks of finished goods leveled off in July, after rising in June, and inventories in general seem to be somewhat above desired levels. District retailers surveyed report increased sales in July, but big-ticket items apparently did not figure in this improvement. Retail inventories showed relatively little change after three months of widespread increases but remain above desired levels. Both manufacturing and retail respondents remain optimistic, expecting further improvement in business conditions over the next six months. Business loans at large District banks have shown little, if any, growth in recent weeks. Real estate loan volume remains essentially flat, while consumer lending continues to advance. In the agricultural sector, drought threatens severe crop losses in North Carolina's piedmont and western coastal plain. Short soil-moisture supplies have also caused crop conditions to deteriorate in many other areas of the District.
Manufacturers' responses to our survey reveal a decline in backlogs of orders during July, resulting from a slight decline in the volume of new orders accompanied by a small increase in shipments. Inventories of both materials and finished goods were essentially unchanged from June, and over one third of manufacturers feel current levels are too high. Manufacturing employment seems to have risen somewhat among respondents, although hours worked per week declined slightly. Most respondents report paying higher prices in July, but reports of receiving higher prices were less common than in recent months. One third of our respondents report increased employee compensation. Thirty percent of the manufacturers responding to our survey continue to view current plant and equipment as excessive, although one in ten now considers them inadequate. There continues to be little desire to enlarge current expansion plans.
Retailers report increased sales in July, although sales of big-ticket items apparently declined in relative terms. Comments of retailers suggest a more favorable outlook for fall lines but continued slack in sales of summer items. The latter are reportedly selling only at reduced prices. Inventories at retail showed little change last month and apparently remain somewhat above desired levels. Prices, paid and received, rose across a broad front. Retailers remain satisfied with the number and size of their outlets.
Business loan volume at large District banks has shown little, if any, growth in recent weeks. Seasonal demand for agriculture-related loans is also weak. The outlook of area bankers is mixed. While some foresee no immediate cyclical turnaround for business loans, others feel the situation is poised for a turnaround in the third or fourth quarters. One Maryland bank reports a recent nominal increase in commercial lending, with some interest reported in term borrowing to finance fixed investment. According to a branch director, however, "there are no signs of inventory accumulation, plant expansion, or other capital expenditures which are needed to spur demand". For the time being, loan volume remains below desired levels.
Real estate loan volume at District banks appears essentially flat, although one Maryland bank reports a moderate increase, primarily in construction lending. Consumer lending is still advancing, although at a reduced rate compared with recent months. Area bankers expect this strength to continue for the present time. The Federal Home Loan Bank in Atlanta reports continued strong deposit inflows into District savings and loan associations. The rate of net inflow, however, has shown recent signs of slowing. The volume of mortgage loan commitments and closings at savings and loan associations is exceptionally high but is expected to subside as deposit inflows slow.
Higher prices than last year, heavier volume, lower but improving quality of marketings, and a small reduction in the percentage of sales placed under loan have characterized the 1976 flue-cured tobacco marketing season thus far. Average prices are currently running some 8 percent above a year ago. Receipts from farm marketings continue to run above a year earlier, but the District increase remains well below that for the nation. The relatively poor gain recorded in the District is due to a sharp decline in crop receipts.
There is still no indication of any problems, real or potential, arising from supply or capacity constraints. Most respondents report no problems in meeting orders and none in obtaining deliveries from key suppliers. There remain several who expect some lengthening of lead time, but nothing out of the ordinary. Only in a few isolated cases are any difficulties being encountered, and there seems to be no pattern of industry involvement. In one case, a manufacturer anticipates difficulty if there is no prompt resolution of the rubber workers' strike.