July 5, 1979
Reports from the Third District indicate that business activity is moderate to slow this month. Area manufacturing has posted its third consecutive no-growth month, and retail sales, which are starting to slow anyway, have been pushed down farther by gasoline problems. As for the future, Business Outlook Survey respondents are forecasting an imminent recession and retailers are being ultraconservative about fall and early winter sales. In the banking sector, loan demand is reported to be up. Interest rates have been cut at some banks, and no further hikes are anticipated in general. The gasoline shortage's major impact so far in the Third District has been on vacation business which is reported to be down significantly at many resorts.
Respondents to the latest Business Outlook Survey say local manufacturing activity remains unchanged for the third consecutive month. Shipments are higher once again, but new orders have not kept pace, causing stock levels to tumble for the seventh time in eight months. On the employment front, area labor seems to be holding its own. Industrial employment is reported to be about the same as it was in May and the length of the average workweek remains unaltered.
Present conditions, however, are not expected to last much longer. Survey respondents foresee some weakness in the economy in the coming months, and are forecasting an imminent downturn. Just how far into the predicted slump we'll be by year-end, or how severe it will be by that time, is open to question though. Neither new orders nor shipments are projected to drop between now and December and responding manufacturers do not expect at this time to cut payrolls within the next six months. Moreover, over one-fourth of the respondents report plans to increase outlays for plant and equipment in the near future. Thus, it appears that although a slowdown is generally expected, manufacturers do not presently look for a precipitous drop-off in business by year-end.
Industrial prices are reported to be up sharply in the region this month. Eighty-six percent of the respondents report paying higher prices for inputs in June, and over 40 percent are charging more for their finished goods. For the longer term, more of the same is expected-recession or no recession. Manufacturers were nearly unanimous (94 percent) in predicting further hikes in the cost of raw materials over the next six months, and over 60 percent plan to raise the prices of the goods they sell.
Third District retail executives paint a much bleaker picture this month than do their industrial counterparts. Retail activity in the region is generally sluggish in late June with reports of current dollar sales ranging from 4 percent above to 8 percent below sales levels for the corresponding period in 1978. Sales are also reported to be below planned levels for the period by 5 to 20 percent. Suburban stores are doing much worse than downtown branches, probably a direct result of gasoline availability problems. However, a Director of this Bank in the retailing industry feels this problem will be rectified shortly, when newly imposed gas rationing plans take effect. Despite sluggish sales inventory, levels have not become a problem as retailers, in anticipation of a general slowdown this year, have been aggressively cutting stock. Merchants cite myriad causes for the observed sluggishness in sales, including the coolest and wettest spring in recent memory, gasoline shortages and prices, the erosion of purchasing power by "soaring inflation," and the possibility that the long awaited recession has finally arrived. It should also be noted, however, that near-record gains were reported in June 1978, making large year-over-year increases at this time less likely in any case.
Looking ahead to the balance of 1979, retailers are being more conservative in making their forecasts than they've been in some time. Projections of December sales volume range from 3 to 7 percent over year-earlier figures, but merchants at the upper end of the scale believe their projections are optimistic. Most expectations have been toned down as fear of an imminent recession grows.
Area bankers say loan demand is generally strong. Reports of C&I loan volume range from 3 to 14 percent over last June. Consumer loans are also up, but by less. Bankers currently anticipate a slowing in loan demand throughout the rest of 1979. Loan volume projections for year-end are very conservative, about even with December 1978. Fear of a coming recession was generally noted by bankers contacted.
Banks in the District are currently quoting a prime rate of either 11 1/2 or 11 3/4 percent. Forecasts for interest rates vary, but no further hikes are anticipated currently. Projections range from a drop in the prime to 10 percent by December to no further changes as inflationary pressures keep it at 11 1/2 to 11 3/4 percent.
No major problems are reported with savings flows in late June. Consumer deposits are reasonably good and corporate savings are holding their own. Money market certificates continue to creep up.
Gasoline is generally available in the Third District at this time, and, as all three states in the District are currently on an odd-even ration plan, lines have grown shorter. Overall, the local economy appears to have suffered very little from the gas shortage thus far. Deliveries of food and commodities seem to be on schedule and no major problems with employee attendance have been noted. The businesses hit hardest by the crisis have been those affiliated with vacation spots. Shore resorts along most of the South Jersey coast report a slow season so far, with business down as much as 20 to 25 percent from last year. This comes as a surprise to many seashore businessmen, who thought that gasoline problems would encourage people who normally would have taken longer trips to go to South Jersey instead. These spots have been suffering from more than gasoline shortages though. For one thing, unseasonable weather has been the rule so far this spring. For another, Canadian visitors make up about one-fourth of the vacationing population in some resorts, and current exchange rates are not favorable to Canadians traveling in the U.S. The one exception to seashore sluggishness this year is Atlantic City where legalized gambling continues to draw record crowds, especially with the opening of the city's second casino.
Tourism in the Pocono Mountains is running about even with last summer, according to contacts in that area. This of course means business is below planned levels, but most of the loss has come from a drop-off in day trips. Prearranged trips such as bus tours, conventions, and honeymoons are up about 12 percent over last year.
As for the rest of the summer, resort businessmen and officials feel that things will shape up if gasoline supplies improve. They do note, though, that business that has been lost to this point is lost forever. It cannot be made up.