Beige Book Report: Richmond
April 12, 1978
Business activity in the Fifth District picked up substantially during March. Particularly in West Virginia, where coal production had been most severely curtailed, the end of the miners' strike apparently created a burst of activity. Around the District manufacturers indicate a widespread increase in shipments and new orders. Backlogs of orders continued to expand moderately and inventory accumulation slowed somewhat. Manufacturing employment showed little change over the month while the work week lengthened only slightly. Prices generally continued to rise across a broad front. Bank credit activity in the Fifth District has been weak in recent weeks, although the slowdown appears to be largely seasonal in nature. Land preparation for spring planting is generally behind last year. Small grains are reportedly in fair to good condition and are responding to the warmer weather and top-dressing.
Of manufacturers responding to our monthly survey one-third report increases in shipments and in the volume of new orders over the past month. Increases in inventories, of both materials and finished goods, were less widespread than in the previous two months, but current stocks continued to grow relative to desired levels. The general improvement in manufacturing activity was widely dispersed among individual industries, but the strongest performances seem to have been in the textile, apparel, and building materials groups. Reports from the furniture industry, on the other hand, suggest some weakness, in apparent conflict with indications from broadly based industry associations and retail outlets.
Reports from retailers and from our Directors suggest some improvement in retail sales during the past month. This improvement has apparently extended into consumer durables with improvement noted in sales of furniture, appliances, and automobiles. Some of the recent activity is being attributed to aggressive marketing, particularly on the part of automobile dealers.
Prices continued their broad advance in March. In particular, 60 percent of the manufacturers surveyed report paying higher prices in March than in February. Increases in prices received and in employee compensation were less widespread than for prices paid and were also slightly less common than in the preceding month. Comments by our Directors, however, suggest that recent price increases have had no significant effect on price expectations to date. The general outlook of our manufacturing respondents has improved somewhat during the past month but still has not regained the firmly optimistic tone which prevailed early in the year. More than one-fourth of these manufacturers now anticipate some improvement in business activity in their respective market areas and individual firms over the next six months. Nonetheless, the prevailing view seems to be that current plant and equipment capacity and expansion plans are in line with desired levels or slightly above.
In the banking sector, consumer and real estate lending have continued their sluggish pattern but show signs of picking up. Personal loans for automobile financing are reported weak in some areas, while financing of big ticket retail items is somewhat offsetting this weakness. Bankers in several areas note that use of credit cards is heavy. Also, our contacts suggest that real estate construction lending is beginning to revive. Bankers expect larger demands for such credit in the near future.
The pattern of business loan demand may be changing somewhat. Commercial and industrial lending at the larger District banks has been strong of late, and there is some evidence that national accounts are becoming more active. At the same time, demand for short-term credit shows signs of rising relative to intermediate- and longer-term loans. While the picture here cannot be described as robust, it is certainly healthy. Deposit inflows at large banks seem to have weakened, with time deposits on the plateau reached earlier. Nevertheless, credit demands have not been strong enough to cause any appreciable rise in negotiable CD's.
Stronger farm prices, coupled with probable continued heavy use of the government loan program, helped to improve farmers' cash receipts from farm marketings in January. Compared with a year ago, total cash receipts were up 3 percent in the District and 11 percent nationally. Below-normal temperatures have delayed fruit tree blooming. As a result, bud kill from weather extremes has been relatively minor to date.