Beige Book Report: Richmond
December 15, 1976
Our November survey of business conditions suggests a continued lackluster performance in the Fifth District economy. Responses of manufacturers surveyed indicate rather distinct softness, with shipments, new orders, employment and weekly hours all declining from a month ago. Reports of reduced volumes of new orders outnumbered reports of increases by better than two to one. Materials inventories were unchanged while stocks of finished goods increased somewhat, and remain above desired levels at many firms. Retail sales apparently showed no change, while sales of big ticket items relative to total sales weakened slightly. Inventories at retail were unchanged, but remain above desired levels. Retailers report no change in prices paid during November, while manufacturers experienced further increases. Retailers and manufacturers, on the other hand, received higher prices. Manufacturing respondents expect improvement in the level of business activity nationally and in their respective market areas during the next six months, but retailers are less optimistic, expecting no significant change. Both groups, however, expect improvements for their own firms. District farm income improved slightly in September and October and is now running 5 percent above a year ago—about the same as the increase for the nation as a whole.
While over one-third of our manufacturing respondents reported new orders running below a month ago, much of this weakness seems to have been concentrated in the textile and apparel industries. Activity in the apparel sector has fallen since early in the year, a trend which a prominent trade publication attributes to excessive inventories at the retail level and to higher imports of apparel products. Whatever the cause, over one-half of textile respondents experienced a reduced volume of new orders in November and now view current plant and equipment capacity as excessive. At the same time, 80 percent of apparel industry respondents also experienced lower volume of orders and feel current capacity is in excess. Some weakness was also reported in the furniture industry while reports from chemicals and primary metals producers were mixed. Manufacturers of electrical machinery and equipment seem to have done somewhat better in November, at least in terms of new orders.
Lower levels of shipments were also reported by more than one-third of the manufacturers, while over one-half report reduced backlogs of orders. Nearly 20 percent experienced increases in materials inventories, but a like number report reductions. Stocks of finished goods apparently grew somewhat, although even here nearly 20 percent of the respondents report declines. In addition, almost one-third indicate reductions in employment in November and almost as many operated fewer hours per week. Prices, including employee compensation, moved up rather broadly, as has been the case in most recent months. Almost 40 percent of the manufacturers surveyed feel current inventory levels and current plant and equipment capacity are excessive and 10 percent now feel current expansion plans should be cut back.
Among retailers surveyed, sales and inventories showed little change last month although sales of big ticket items declined slightly in relative terms. Employment was also unchanged, but employee compensation rose as did prices received. Prices paid held steady. Forty percent of our retail respondents view present inventory levels as excessive, but all say the current number and size of outlets is about right.
The retailers are unanimous in expecting the level of business activity nationally and in their respective market areas to remain unchanged over the next six months, but 40 percent expect some improvement in the level of sales of their own firms over that time period. One-half of the manufacturers, on the other hand, expect improvement in each of these areas.
Results of a recent survey of district banks failed to yield a clear-cut picture of business loan demand. The borrowing needs of business are increasing moderately, with both short-term and long-term demands represented. It is clear, however, that borrowers are leaning toward longer maturity, fixed rate loans, and that lenders are resisting this movement.
Record high prices on all flue-cured tobacco belts highlighted the 1976 marketing season. With prices averaging 11 percent higher than in 1975 and quality of offerings better on the eastern North Carolina and border belt markets, the total value of sales was up about 5 percent even though volume of marketings was down. Reports from South Carolina indicate that farmers are still holding free cotton and that some are asking 80 cents per pound.