June 15, 1977
Responses to our June survey of business conditions suggest that further expansion of the Fifth District economy occurred during the past month, although optimism concerning the prospects for further gains appears to have been dampened somewhat. Manufacturing respondents continue to experience increases in shipments, new orders, and backlogs of orders, along with increases in inventories, particularly of finished goods. Retailers report essentially no change in total sales during May and a slight decline in relative sales of big ticket items. Retailers noted little change in prices from a month ago but manufacturers continue to report widespread price increases. Although respondents expectations on balance remain optimistic the fraction anticipating further gains over the next six months has declined markedly over the past three months. Comments of Directors and District bankers suggest the existence of little or no real estate activity that might be termed "speculative."
Approximately one-third of the manufacturers surveyed this month continue to report increases in shipments, new orders, and backlogs of orders on a month-to-month basis. Reports of declines in these measures of activity are somewhat more common than in recent months, however. Manufacturers' inventories, which have been essentially flat over the past several surveys, appear to be moving upward again. Current inventory levels remain basically in line with desired levels, at least when compared to recent months. Employment by manufacturers apparently made widespread gains in May and employee compensation continued a broad advance. Other prices paid by manufacturers were also reported to have increased across a broad front. Current plant and equipment capacity remains in line with desired levels as do current expansion plans.
Among retailers surveyed there was little change in total sales during May and a slight decline in the relative sales of big ticket items was indicated. Retail inventories were unchanged to slightly larger and remain basically in line with desired levels. The number of employees of the responding retailers declined over the month, while employee compensation continued to rise. Other prices paid and received by retailers showed little change.
Sentiment among the District's business community, while still generally optimistic, is considerably less buoyant than was the case three or four months ago. About a third of both manufacturing and retail respondents anticipate further improvement in business, both nationally and locally, over the next six months. The fraction expecting improvement, which stood at 75 percent in March, has declined steadily in each of the last three surveys.
Directors comments suggest no serious speculation in residential real estate or farmland in any part of the District with the possible exception of the Washington-Baltimore area. Within the latter area, such apparent speculation as may exist does not appear to be of the same general variety as that reported in California and Texas. In particular, it does not seem to involve existing housing or houses about to be completed. The single exception seems to be in Baltimore where restoration of historic houses has recently become quite popular. There are reports of speculative buying of such properties for quick resale at a profit. One banker active in northern Virginia and Maryland also reports growing speculative activity in land suitable for residential development, but no activity in residences as such. Farmland remains in good demand throughout most of the District but this demand appears to be related more to longer run investment or development plans than to quick turnover for a profit. Contacts with agricultural bankers around the District lead to much the same conclusion, i.e., that there is little, if any, speculative activity in the farm real estate market at this time.
Reports from the banking community indicate that business loan demand remains essentially flat at larger banks but somewhat more robust among smaller institutions. At least one large bank reports losing business to long-term debt markets. Competition for loans is very intense, resulting, in some cases, in longer maturity offerings and some reductions in the mark up over the prime rate. Consistent strength persists in the consumer lending area.
Recent rains have relieved dry conditions and aided crop growth in all District states except West Virginia. But soil moisture supplies in areas where rain has fallen continue to vary widely, ranging from short to surplus. Heavy rains damaged the flue-cured tobacco crop in the North Carolina Coastal Plains, causing an estimated $25 million loss in sales this fall. The District's peach crop is expected to be about one-fifth larger than last year's in contrast with a slightly smaller crop nationwide. District farm income showed considerable strength during the first quarter, rising 12 percent over a year ago. This advance reflected a sharp 28 percent upturn in crop receipts and a 6 percent increase in receipts from livestock and livestock products.