October 11, 1977
Responses to our latest survey suggest that Fifth District manufacturing activity made few advances in September. Shipments by District manufacturers increased, but by less than during the previous months New orders have weakened slightly and backlogs of orders have been worked down somewhat since August. Inventories continued to expand, albeit rather slowly, and remain above desired levels. The optimism which prevailed among District manufacturers until recently has now been entirely dissipated. The retail sector apparently did better last month as both total sales and relative sales of big ticket items picked up. Credit extended by large District banks surged ahead in the past few weeks, led by substantial gains in commercial and industrial loans. Much of the increase, however, appears to be of a seasonal nature as banks meet the credit needs of tobacco leaf dealers.
Survey results suggest continued slow growth in manufacturing employment, although an increase in weekly hours worked was indicated this month. Manufacturers' shipments continued to make some gains in September, but apparently demonstrated less overall strength than in August. New orders were virtually flat for the third consecutive month and, as a result, backlogs of orders are now somewhat below last month's levels. Manufacturers' inventories, particularly of materials, continued to expand and more than one in three respondents view current levels as excessive. Prices paid, other than employee compensation, continued to advance with nearly one-half of the manufacturing respondents reporting further increases. Increases in average hourly earnings were less common than those of other prices paid. On the other hand, respondents reported virtually no change, on balance, in prices received.
These recent developments have been rather general, not restricted to any one sector. The only exception to this is a noticeable slowing in the textile industry. Of textile manufacturers responding to our survey, one-half reported a decline in the volume of new orders in September, while 60 percent experienced a reduction in backlogs of orders. At the same time, the outlook among textile producers has deteriorated to the point where one-third of those respondents anticipate further reductions in their production over the next six months.
Among all manufacturing respondents, the outlook is clearly less bright than in recent months. Concerning the level of business activity nationally, sixty percent foresee no change over the next six months while the remainder are evenly divided between expecting further improvement and expecting a worsening trend. Much the same pattern exists in their views concerning the outlook for their immediate market areas as well as for their respective firms. Among retailers surveyed, there seems to be little indication that conditions are expected to change over the next six months.
The retailers reported some improvement in September as total sales and relative sales of big ticket items both rose somewhat. Inventories were also higher than in August, but are generally in line with desired levels. In addition, there were no reports from retailers that indicated any change in prices from a month ago.
Banks' experiences have been mixed regarding the sources of strength in credit demand. While there continues to be overall strong demand for consumer loans, some isolated weakness has nevertheless arisen. This weakness, however, is seen to be temporary, arising mainly from an extended model changeover period in the automobile market. In addition to the recent increase in loans to tobacco leaf dealers, a smaller part of the overall increase in loan demand is broadly based across industrial sectors, continuing the modest cyclical rise that has been underway for some months now. There has been a definite slowing in growth of consumer time deposits. Rising short-term market rates of interest are seen as contributing to this slowing. Many District banks see short-term rates rising in the future, and consequently there is growing interest in issuing longer term CD's.
Widespread drought and a tightening cost-price squeeze combined to weaken the financial condition of many Fifth District farmers during 1977. Some have been hard hit. Large numbers of farm operators are reported to be in reasonably good shape, however. Similarly, the overall quality of farm loan portfolios deteriorated at quite a number of banks. But all bankers reported they would be able to deal successfully with most cases of problem farm loans. Moreover, none were expecting to have to absorb any losses from their farm loans.
Year-to-date cash income from farm marketings was below the year ago level for the January-July period. The District decrease, all of which occurred in the Carolinas, amounted to less than 1 percent. With weaker demand and lower quality offerings, flue-cured tobacco prices have begun to trend downward after holding at record levels for about six weeks. The seasons s average price is 10 percent above a year ago and at an all-time high, however.