Beige Book Report: Richmond
January 13, 1977
Responses to our latest survey of Fifth District business conditions suggest little change in overall activity in December. Manufacturers' responses suggest no change from the previous month in either shipments or the volume of new orders, little change in inventories, and declines in order backlogs across a broad front. In contrast with national data, District retailers report only slight improvement in sales, with sales of big ticket items relative to total sales apparently down sharply. Manufacturing employment also showed little change and a number of firms worked fewer hours per week. Prices paid by retailers and manufacturers moved upward in December but neither group of respondents indicated any change in prices received. Inventory levels, at both manufacturing and retail, continue to be viewed as excessive, as does manufacturing plant and equipment capacity. The number and size of retail outlets, however, are in line with desired levels.
The retailers surveyed were unanimous in expecting no change in the general level of business activity nationally over the next six months. One-half of our manufacturing respondents, on the other hand, expect to see some improvement in that period. Much the same holds true for expectations concerning activity in the respondents' respective market areas and individual firms; manufacturers remain essentially optimistic while retailers foresee little further improvement within six months. At least two District states are beginning to experience tight supplies of natural gas and interruptions in deliveries to some commercial users are expected. Continued cold weather is likely to lead to actual cutbacks in some areas.
The overall picture presented by our manufacturing respondents was essentially neutral, with equal numbers reporting increases and decreases in both shipments and the volume of new orders during December. Nearly one-half of the respondents report reduced backlogs of orders during the past month. The responses suggest that inventories of finished goods were unchanged and stocks of materials were up slightly. Over one-third of the manufacturers continue to view current inventory levels as excessive. Reports of price increases were less widespread than in recent months, particularly with respect to prices received. Concerning expectations for the next six months, approximately one-half of the manufacturers surveyed see at least some improvement nationally, locally, and in their own firms. One producer of consumer electronics equipment anticipates a pick up in sales with the introduction of new models in the second quarter.
With two notable exceptions, the experiences of individual industries represented in our survey seem to match the overall picture. In the primary metals group, nearly 85 percent of our respondents report an increased volume of new orders in December and almost as many report a larger volume of shipments. Metals producers report backlogs of orders, inventories, and prices unchanged and current inventories and plant and equipment capacity at desired levels. One respondent views current capacity as inadequate. On the other hand, responses from the furniture industry, are surprisingly pessimistic in view of the sharp recent improvement in housing. Eighty percent of respondents in this industry report declines in both new orders and backlogs of orders in December and one producer reports facing short time despite having cut prices and run specials. Producers' inventories and plant and equipment capacity in the industry are reported to be excessive. In addition, furniture men seem to expect no significant improvement in their business over the next six months.
Retailers responding to our survey suggest little change in the overall level of activity in December although individual responses varied considerably. Total sales seem to have been stable to slightly improved, although sales of big ticket items relative to total sales declined. Inventories were also unchanged and apparently remain above desired levels. Prices paid by retailers rose after showing little or no change a month ago. One retailer has experienced or anticipates significant price increases in several basic lines, including leather goods, drapery and home furnishing fabrics, and men's clothing. Consumer concern over prices and favorable response to price reductions are also noted.
In the banking sector, commercial loan demand continues to show some halting improvement although the pattern is still uneven from week to week. Increased commercial loan volume in recent weeks appears to be due mainly to demand from transportation companies and food and agricultural products processors. In connection with this demand, banks are returning to the CD market. The demand for consumer loans remains healthy.