May 10, 1978
Business activity in the Fifth District continued to expand in April at about the same pace as in March. Responses to our survey of manufacturers suggest continued strength in new orders, with further increases in backlogs and some slowing in the rate of inventory accumulation. Retail activity apparently settled back somewhat after several months of brisk expansion, but continues firm, especially in the big ticket items. Manufacturers' expectations also improved over the last month marking the end of the psychologically dampening effects of foul weather and the miners' strike. Credit demands at Fifth District banks have strengthened somewhat in recent weeks, with business leading the way. There is some indication that a slowing of deposit inflows at District S&Ls over the past month is beginning to impact on terms of lending.
Of manufacturers responding to our survey, over one-third report increases in shipments, new orders, and backlogs in the past month. The growth of inventories, finished goods and materials, has slowed considerably in the last two months, but stocks generally remain at higher than desired levels. Manufacturing employment also picked up in April after declining in the two previous months. The gains, however, were scattered rather than pervasive. Areas of current strength in manufacturing include food and kindred products, apparel, non-electrical machinery and equipment, and chemicals. Some weakness was reported by manufacturers of electrical equipment, while the furniture and primary metals producers have apparently experienced little or no change in the level of activity.
Retail respondents report some slippage in total sales during April following several months of vigorous expansion. Big ticket items continue to move well, however, Retail employment was down slightly over the month. Inventories were up a bit and remain somewhat above desired levels. Reports from both manufacturers and retailers continue to indicate widespread price increases. Both groups report further increases in prices paid, including employee compensation, and prices received. Nevertheless, respondents remain basically optimistic, expecting continued improvement in business activity nationally, locally, and in their respective firms over the next six months.
Credit demands at Fifth District banks have strengthened somewhat in recent weeks, with businesses leading the way. Both consumer and real estate loans have started to increase from the essentially flat patterns established over the first few months of the year, but the rates of increase in these categories do not match those of a year ago. Commercial and industrial loans at both large and smaller banks, however, are stronger than at the same time a year ago. The smaller banks especially are experiencing robust demand for business loans. Loan proceeds are being used for working capital and fixed investment, with smaller sized businesses accounting for the greatest share of loan volume. Usage of credit lines by national firms is still quite low. Bank time and savings deposits net of large negotiable CD's are increasing at a healthy rate, while negotiable CD's are being allowed to run off.
Soil moisture supplies are rated adequate to surplus throughout most of the District. Because of the wet soil conditions and below-normal temperatures, spring planting is running behind schedule and prospects for good germination of earlier planted seed are in question. Some replanting will undoubtedly be necessary. Fruit crops generally remain in good condition, except for some recent scattered hail and frost damage in South Carolina.
Despite the threatened farm strike last winter, the District's farmers as of April 1 reported intentions to reduce 1978's total planted acreage by only 1 percent from that in 1977. Some significant shifts among the various crops are in the works, however. Major acreage cuts are planned f or cotton, wheat (seeded last fall), and corn, while sizable increases are intended for soybeans, other small grains, hay, and sweet potatoes.
Our farm credit survey for the first quarter of 1978 revealed that the farm loan repayment experience of District banks has improved significantly, while requests for renewals and extensions have dropped sharply, since the final quarter of 1977. Much of this improvement results from farmers' receipts of funds from the Federal drought disaster loans. Demand for farm loans from banks is unusually strong. Reportedly, bank supplies of loanable funds are at the lowest level since this survey began in September 1975. Few bankers, however, have been forced to refuse a farm loan because of a shortage of funds.