May 16, 1979
Most indications are that Fifth District business activity continued to expand through April. Manufacturers surveyed report further increases in new orders, order backlogs, and shipments. Loan demand of businesses and households is strong and survey respondents generally characterize business as "good." They express concern, however, that recent heavy consumer spending may have been largely anticipatory in nature and that this, coupled with a growing burden of consumer debt, will dampen retail sales in the near term future. Most of our directors view the recent strength in the economy as a rebound from the seasonally depressed first quarter and expect a slowing of activity to begin shortly. Expectations among our manufacturing respondents have also become more negative in recent weeks.
More than one-third of the manufacturers responding to our latest survey experienced gains in new orders and increased shipments and order backlogs over the past month. Manufacturers' inventories have grown only very slowly in recent months and there is little concern about their current level. Manufacturing employment apparently continues to expand but the average workweek has remained unchanged for several months now. Most respondents in the goods producing sector are comfortable with both current capacity and expansion plans. Recent strength in manufacturing does not seem to have been evenly distributed among industries. Textiles producers have apparently encountered substantially firmer demand for their output in recent weeks, but curiously, apparel producers report flagging demand for their products. Respondents in the furniture industry also report weakening demand.
Our directors and a number of our survey respondents seem increasingly concerned that the recent heavy buying of consumers durables has been speculative and will act as a drag on future sales activity. Current debt positions of many households are also cited as a source of concern for the near term future of consumer spending. Most of our directors expect activity to slow or decline in the near future. Expectations of our survey respondents also deteriorated in April. Over half the manufacturers surveyed now expect the level of business activity nationally to decline over the next six months and well over one-third expect a worsening in their respective market areas. Most expect little or no change in the level of production in their own firms.
Recent reports from district financial institutions confirm that aggregate credit demand is strong and that both businesses and households are borrowing actively. Only the residential mortgage loan market shows any signs of weakness, but even here there appears to be significant strength in some states. Credit demands of manufacturers have increased strongly in recent weeks. These demands are apparently not associated with unwanted inventory accumulation but rather reflect working capital requirements that have risen along with the pace of business activity. There are also indications of exceptionally strong latent credit demands, as reflected in healthy increases in requests for lines of credit. Large retailers, on the other hand, paid down their credit lines after an active Easter sales period and apparently do not expect to increase their borrowings until the third quarter of 1979 at the earliest.
With the sharp rise in farm prices during the first quarter of 1979, the improvement in Fifth District farmers' financial position that began last year has continued. This Bank's first quarter survey of farm credit conditions indicated continued improvement over a year earlier in loan repayment rates and in the number of request for renewals. While farm loan demand at banks was down significantly from a year ago, it was up sharply at production credit associations and Federal land banks. Bank supplies of loanable funds continued at the reduced levels of the three immediately preceding quarters. Loan-to- deposit ratios of reporting banks rose moderately, however. Moreover, there was a modest increase in the proportion of banks actively seeking new farm loan accounts and a reduction in the share indicating they had been forced to refuse or reduce a farm loan because of a shortage of funds.