Beige Book Report: Richmond
October 13, 1976
Responses to our October survey of Fifth District business conditions suggest continued sluggishness in demand at both the retail and the manufacturing levels. Although shipments by District manufacturers increased in September, the volume of new orders remained soft and backlogs of orders declined somewhat. Manufacturers' inventories are still apparently above desired levels, although stocks of materials declined slightly. Manufacturers' responses showed the first signs of weakness in employment since spring. Retailers reported sales as steady but with big ticket items continuing to move slowly. Inventories at retail continued to expand in September. There is some evidence that price pressures may be abating. Increases were less widespread in September than in most recent months and respondents in a follow-up to our regular survey cited relatively low capacity utilization, growing inventories, and continuing weakness of demand as reasons to expect greater price stability over the next three to six months than in the recent past. With only a few isolated exceptions respondents anticipate no difficulties in obtaining supplies or in meeting orders. In line with recent developments in business conditions, there seems to have been some downward revision of respondents' expectations for the level of activity over the next six months, although the general tone of those expectations remains positive.
Of manufacturers responding to our latest survey, over one-third report an increase in the level of shipments during September and nearly one-half noted no change from August. With respect to the volume of new orders, however, only 28 percent reported increases, slightly fewer than reported declines. Over 20 percent indicated declines in employment and a comparable number reported reduced weekly hours. Despite virtually no change in finished goods inventories and a slight decline in stocks of materials, the proportion of manufacturers viewing current inventory levels as excessive was somewhat larger this month than last. The view that current plant and equipment capacity is excessive remains widely held but few respondents indicate any inclination to alter current expansion plans. The fraction of manufacturing respondents expecting business to improve over the next six months declined slightly in our latest survey but about 45 percent still expect some improvement, while another 45 percent expect the general level of business to remain unchanged.
Among individual industries, producers of consumer goods, particularly apparel and furniture, seem to have accounted for much of the slowing in activity. Primary metals producers also apparently have experienced some slowdown, but producers of machinery and equipment, electrical equipment, and chemicals continue to report some improvement.
At the retail level respondents once again noted a weakening in sales of big ticket items but overall sales apparently held at almost the August level. Inventories expanded further in September and remain somewhat above desired levels. Retail price increases were also less widespread than in recent months.
Responding to a brief follow-up survey concerning price expectations, a small sample of our respondents expressed general agreement that prices should show little change or remain flat over the short-term future. Such reasons as generally soft demand, the failure of earlier optimistic expectations to be met, stability of materials costs, and growing inventories in many sectors were cited as explanations for this view. One respondent expressed great hesitancy to comment on the future of prices because of what he called a most confused market, with prices for some lines remaining quite strong and others showing considerable weakness.
Our survey of District banks suggests some healthy increases in loans over the past month, particularly business loans but also in the consumer and real estate areas. Much of the strength in business loans seems to have originated among wholesalers, commodity dealers, and public utilities.
With the sharp decline in crop receipts through the first seven months of the year, the District's total cash farm income has registered only a slight increase over a year earlier. But with the marketing of the fall-harvested crops, this situation could improve significantly. Both soybean and cotton prices are higher than last year, while flue-cured tobacco prices are at record levels, 14 percent above a year ago.