May 10, 1977
Our latest survey of Fifth District business conditions shows further gains in business activity in April, in both the manufacturing and retail sectors. Manufacturers report further increases in shipments, orders, and order backlogs. Employment and weekly hours also continued to move up among manufacturing respondents. Inventories showed little change and are now more nearly in line with desired levels than has recently been the case. Prices continued to rise across a broad front in April. Manufacturers responding to the survey remain optimistic, with a majority expecting further improvement in business conditions over the next six months. Retailers, on the other hand, apparently foresee little or no change in the level of activity over that time period. In the banking sector, commercial loan demand has weakened over the past few weeks, but real estate loans, consumer installment credit, and agricultural loans have all advanced steadily. Fifth District farmers surveyed on April 1 reported intentions to increase the total acreage planted to field crops this spring by some 280,000 acres or around 2 percent over last year.
Concerning the question of the impact of the proposed energy program on business investment, a telephone survey of several of our Directors revealed that while the proposal has contributed to a general feeling of uncertainty, it is unlikely to have a significant effect on investment at this time. The consensus appears to be that in a business environment where uncertainty stemming from environmental regulations, possible changes in business taxes, inflationary pressures, and similar existing factors is already prevalent, additional unanswered Questions cannot help but are unlikely to have a major effect in the immediate future. On the positive side, it was noted that at least the President's proposal represents a concrete effort to come to grips with a pressing problem and that from this standpoint it could be encouraging to some people. On the other hand, it was generally agreed that the plan offers no incentive for the production of energy and apparently fails to recognize some of the problems of particular industries. In summary, responses suggest that the impact of the proposal itself should not be significant but could lead to some delays in proceeding with specific investment plans.
Nearly half of our manufacturing respondents reported shipments as being up from a month ago and almost as many experienced similar increases in the volume of new orders and in backlogs of orders. Inventories were essentially unchanged over the month, but fewer respondents now feel current levels to be excessive, and some now view their stocks as inadequate. Employment was up slightly in April according to our manufacturing respondents, as were hours worked per week. Prices, including employee compensation, were reportedly higher in April than in March. One-half of those surveyed paid higher prices last month. Current plant and equipment relative to desired levels was about the same in April as in March, although the number of firms viewing it as inadequate increased slightly.
Most of our retail respondents reported a higher level of sales in April than in March, but there was only a very slight increase in the relative sales of big ticket items. Inventories at retail were unchanged and are now near or slightly below desired levels. As with the manufacturers, prices paid and received by retailers were broadly higher. In fact, retailers were unanimous in reporting increases in employee compensation and in prices paid. The number and size of outlets remain in line with desired levels.
In the banking sector, lending of the real estate, agricultural, and consumer installment varieties has continued a steady advance in recent weeks. Commercial loans, however, have weakened in the District in line with the national pattern. This weakness has been concentrated primarily in durable goods manufacturing, e.g., metals, and in some nondurable areas, particularly the food, liquor, and tobacco group and in textiles. Demand for loans to retailers and wholesalers has held up and is particularly strong among wholesalers. Large CD's outstanding have declined in line with loan demand.
According to the April 1 planting intentions survey, soybean acreage, expected to be up some 10 percent, will account for most of the rise in acreage planted to field crops, although fairly significant increases in cotton and hay plantings are also intended. Plans for a slight reduction in feed grain acreage and a 13 percent cut in tobacco plantings will be partially offsetting. District farm income improved significantly during January and February, rising 13 percent over that in the same period last year compared with about a 3 percent gain nationally. Although increases in both crop and livestock receipts contributed to the District advance, most of the upturn was due to a 31 percent gain in crop receipts. Higher prices and larger marketings caused by the delayed harvest of some 1976 crops were primarily responsible for this sharp increase.