Beige Book Report: Richmond
January 11, 1978
The pace of Fifth District manufacturing activity apparently showed little change in December, judging from responses to our latest survey. The volume of new orders and backlogs were down somewhat while shipments were essentially unchanged. Inventories also showed little change, a minor expansion of stocks of materials being offset by a comparable decline in finished goods. There remains, however, a widespread view among manufacturers that current inventories are above desired levels. Retailers' expectations of a strong Christmas selling season have apparently been fulfilled. Total sales as well as relative sales of big ticket items increased in December. Concerning longer term expectations, manufacturers' outlooks have improved over the past month, but a majority of the respondents still foresee little change in the level of business activity over the next six months. The apparent lack of progress in the coal industry negotiations suggests continued sluggishness in the overall level of Fifth District activity in the near term future as supporting industries continue to cut back operations and personnel.
As in December, our January survey of manufacturers showed considerable variation in the performance of individual respondents. There is little indication from the survey of the present direction, if any, of the District economy. One change since last month is that the weaker responses are now more heavily concentrated in the textile industry and the fibers component of the chemicals group. Otherwise there is no discernible pattern in this month's responses. Inventories held by District manufacturers were virtually unchanged, but the view that current levels are excessive remains common. Employment and weekly hours worked both declined in December according to survey respondents. Prices, particularly prices paid, continued to rise across a broad front.
In the retail sector activity was broadly higher in December than a month earlier. Respondents to our survey were unanimous in reporting increased sales and a majority also reported increases in the relative sales of big ticket items. Inventories at retail showed little change and are generally in line with desired levels. Employee compensation, in terms of average hourly earnings, rose over the month, but responses suggest no change in other prices paid or received by retailers.
District manufacturers express somewhat greater optimism than in recent surveys and expectations in general now seem more positive than at any time since mid-summer. Approximately one-third of the manufacturers surveyed now expect the level of business activity nationally, locally, and in their respective firms to improve over the next six months. Retailers, on the other hand, apparently expect little or no change in the level of activity over that period.
The UMW strike remains a major factor in the Fifth District economic picture. Indications are that somewhat in excess of 80,000 Fifth District employees are out of work as a result of the strike, although this number has not increased since the early days of the work stoppage. Significant additions to this figure are unlikely over the next month. Should the strike extend beyond that point, however, a second round of layoffs, primarily of coal users, is likely unless other sources of coal are found.
Credit at large Fifth District banks has expanded moderately during the past several weeks, with loans to consumers and business leading the expansion. At the same time inflows of time and savings deposits net of negotiable CD's have been small. Holdings of large negotiable CD's, however, have risen substantially. These funds have increased every week for the past several months. Consumer credit extended by banks has risen steadily since November, reversing its October lull. Real estate loans, on the other hand, continue seasonally weak. Half of the banks reporting on the Fifth District survey of changes in lending practices confirm that demand for commercial and industrial loans has increased moderately over the past six months. Only two of the twelve reporters, however, expect such demand to continue to expand over the next three months. Both the price and non-price terms on business loans have firmed recently, as District banks exhibit a reduced willingness to enter into term loan arrangements.
The District's cash farm income during January-October 1977 was down 4 percent from a year ago, reflecting the drought-reduced crop output and sagging grain, soybean, and cotton prices. Crop receipts were 10 percent under the year-earlier period, while livestock receipts were up 2 percent. Nationally, total cash farm receipts were about 1 percent under the year-ago level.