Beige Book Report: Richmond
August 10, 1977
The pace of business activity in the Fifth District showed little change in July, judging from responses to our latest survey. Levels of manufacturers' shipments, new orders, and backlogs of orders were essentially unchanged from a month earlier. Inventories of materials also showed little change while stocks of finished goods continued to grow. Nonetheless, a majority of the respondents now feel current inventories are in line with desired levels. Price increases were less widespread than in most recent months. The outlook of the manufacturers surveyed, while still less optimistic than that of several months ago, has changed little since May and remains basically positive. Loan activity at District weekly reporting banks has slowed somewhat in recent weeks, but consumer and real estate loan demand remain strong. Directors of the Richmond Fed and its Branches report that retail sales in July were little changed from June except for increases in sales of cooling equipment and sale merchandise.
According to a majority of our manufacturing respondents, shipments were unchanged in July as were backlogs of orders. About one third reported increases in new orders but nearly as many reported declines. The textile industry continued to report a relatively weak orders picture while the electrical equipment group reported some strength. Results from most other industries were mixed. Reports on inventories were also uneven. Stocks of materials apparently rose very little while finished goods stocks expanded across a broad front. While most respondents are satisfied with current inventory levels, there is some disparity among individual industries in this regard. The textile industry appears to be holding larger inventories than desired, but there is some indication that stocks in the paper, chemical, and buildings supplies industries may be below desired levels. Employment among manufacturers surveyed seems to have risen very little in July and the length of the average work week may have declined slightly. Employee compensation continued to rise across a broad front as did other prices paid and received, although the increases in prices paid by manufacturers were less widespread than in recent months. Current plant and equipment capacity remains basically in line with desired levels as do current expansion plans.
Our Directors report good prospects for a substantial pick up in apartment building during the second half of the year. Several Directors cited evidence that this pick up is already under way in their areas. Concerning the prospects for energy supplies, most of the Directors anticipate at least some shortages over the next year, but there is no indication that any serious problems are expected to arise.
Business loan activity at major banks in the District has been soft recently, due mainly to reduced demand from the manufacturing sector. Larger District banks have also run off holdings of bankers' acceptances, and this has acted to depress the recent loan data. Wholesale, and especially retail businesses have increased their demand for bank loans. Recent data notwithstanding, the general feeling seems to be that business credit demands will strengthen in the months ahead. A large North Carolina bank, for example, expects its textile customers to seek inventory financing. A Maryland bank sees a continuation of strong business loan demand, especially in term lending. One area of concern is the agribusiness sector, especially the tobacco industry. A Virginia bank that normally provides heavy credit support to this sector expects drought conditions to disturb the seasonal lending patterns to the tobacco industry.
District cash farm income for the five months ending in Hay showed an 8 percent increase over a year ago, compared with about a 2 percent gain nationally, but it seems unlikely that this margin of difference will be maintained as the year progresses. Drought conditions worsened considerably during July and early August, cutting prospective crop yields, reducing quality of the tobacco, and causing a sharp decline in pasture conditions. Beef cattle farmers, especially those in North and South Carolina and Virginia are selling their herds—reportedly in record numbers in the Carolinas—in an effort to cope with the lack of forage. Corn has been especially hard hit, and some of the drought-damaged crop is now being harvested for silage and hay. Soybeans have also been hurt seriously. Moreover, flue-cured tobacco prices thus far are averaging significantly below a year ago because of the lower quality of offerings. Although there may be some improvement in average prices as the marketing season moves along, production as of July 1 was expected to be around 13 percent short of the 1976 crop.