Beige Book Report: Richmond
October 10, 1979
Business activity in the Fifth District seems to have stabilized somewhat over the past month. Our survey of manufacturers reveals some further declines in shipments and new orders, but the declines narrowed substantially from earlier months. Further, stocks of materials held by manufacturers rose only very slightly while finished goods on hand were actually reduced. Inventories remain above desired levels, however. Richmond directors, though, see few signs of excessive inventory buildups other than in such lines as autos, farm machinery, and recreation equipment. Retail sales also held their own in September. Lending at Fifth District banks is increasing moderately, especially business and real estate lending.
Shipments by our manufacturing respondents showed only a very slight decline in September. About half the respondents report no change at all while the remainder are very nearly evenly divided between gains and reductions in shipments. The volume of new orders also appears to have slipped somewhat, but, again, most respondents experienced no change. Backlogs of orders were essentially unchanged. Reductions in employment and the length of the workweek were decidedly less widespread in September than in the two previous months.
Only 15 percent of our manufacturing respondents had further accumulation of materials inventories in September, down substantially from a month earlier. Survey responses further suggest some reduction in stocks of finished goods over the month. Richmond directors, for the most part, are aware of little rapid inventory accumulation in their respective areas. A few mentioned specific lines in which problems may exist, however. Specifically, autos, farm machinery, recreation goods, building materials, and furniture were mentioned, in isolated cases, as possible problem areas. Survey respondents, manufacturing and retail, still view current stocks as somewhat above desired levels, however. Pessimism remains pervasive among our survey respondents. A majority anticipates declines in the level of business activity nationally and in their respective market areas over the next six months. Nonetheless, about two-thirds expect output of their own firms to hold steady.
Contacts with several large regional banks suggest that business loan growth is a bit stronger than would be expected from seasonal factors alone. Seasonal demand from nondurable goods manufacturers, commodity dealers, and wholesalers as well as retailers, has boosted commercial and industrial loan volume over the past month. In addition, however, there has been some broadly based demand for working capital and expansion loans. None of our contacts has seen any significant line of credit usage due to inventory accumulation. Rather, bankers see firms as being extremely cautious on the inventory front, with the textile and apparel industries frequently cited examples. Depressed 1980 apparel sales are being forecast and conservative inventory building has reduced the current financing requirements of manufacturers.
Consumer installment lending has weakened after a brief spate of activity related to increased auto sales. Our directors are unanimous in attributing reduced consumer loan demand to a general weakness in durable goods purchases. Some banks have tightened their credit standards on consumer loans, but our directors are not aware of any difficulties being encountered in obtaining such loans.
Real estate is perhaps the most active lending area for Fifth District banks at this time, partly due to reduced participation by thrift institutions. Banks appear generally willing to take on mortgage loans. Real estate lenders note, however, that higher mortgage rates have narrowed the eligible market for residential mortgages to higher income borrowers. Demand for mortgage financing is firm. Construction lending is slowing somewhat as a result of both reduced demand and tighter standards. Demand seems to be the major restraining factor as home builders become more concerned about the willingness of potential home buyers to pay high mortgage rates and the continued availability of mortgage funds. Several of our directors, however, cite the availability of credit to builders and contractors as a factor in this slowing of construction lending.