Beige Book Report: Richmond
May 14, 1980
Most indications are that business activity in the Fifth District slowed during April. Manufacturers surveyed report declines in shipments, new orders, and order backlogs. Retail sales also weakened, although much of the decline may be attributed to durable goods, particularly home furnishings and appliances, which often involve credit sales. A number of retailers note significant reductions in credit sales. Despite lower interest rates, commercial and industrial loan activity has weakened considerably in recent weeks. The weakness in consumer credit, especially auto installment loans, and home mortgage loans continues. On balance, the high interest rates and increased costs of other farm inputs have combined to reduce demand for farm loans at banks well below a year ago. Much slower loan demand than a year earlier was also in evidence at production credit associations and Federal land banks.
Over half of the District manufacturers surveyed experienced declines in new orders and order backlogs over the month. Shipments were reported down by more than a third of the respondents. Inventories of materials were unchanged and stocks of finished goods rose only very slightly in April. Nonetheless, more manufacturers find inventories excessive now than a month ago. Manufacturing employment has shown little change in recent weeks, but the length of the workweek has fallen at a number of establishments. The decline in manufacturing activity has been, to date, more remarkable for its breadth than for its depth. Industries experiencing softness in their particular markets include textiles, building materials, chemicals, primary metals, and furniture. This weakness does not seem to pervade any industry, however, but is affecting individual plants. One sizable plant formerly producing synthetic fibers and employing over 900 workers has closed permanently.
Recent retail sales activity may be best described as spotty. According to our directors and retail respondents sales activity in home furnishings, home improvements, and appliance lines has been very weak. Activity in other non-auto lines, however, seems to have held up well in most areas. On balance, retail respondents experienced month-to-month declines in total sales and in relative sales of big ticket items. Inventories at the retail level also fell over the month but remain somewhat above desired levels.
Expectations of District respondents deteriorated sharply over the past month. An overwhelming majority of retailers and manufacturers expect the level of general business activity nationally to worsen over the next six months. A majority of manufacturers also expect business in their respective market areas and individual firms to weaken over that time period. Of retailers surveyed half foresee declining activity within their market areas and individual firms.
Declines in market interest rates are showing up in consumer loan markets and mortgage interest rates have fallen 1 to 2 points in many areas. Large Fifth District banks have kept pace with the money center banks in lowering their prime lending rates. Nonetheless, commercial and industrial loan activity has weakened considerably in recent weeks. The weakness appearing now partly reflects a movement to cheaper, nonbank sources of funds by large national customers of area banks, especially utilities and nondurable goods manufacturers. The weakness in consumer credit, especially auto installment loans, continues. Outstanding installment loans at weekly reporting banks have actually declined over the past month, reflecting reductions in auto loans and personal cash loans. These declines seem largely related to changes in consumer attitudes toward borrowing and to the high price of credit. It has also been reported that consumer attitudes toward use of credit cards is becoming more conservative, with usage falling and repayments rising. Delinquencies on consumer loans have not become a problem to area banks.
Our first quarter survey of farm credit conditions suggests that District farmers, by and large, have been hard hit by the effects of inflation, the sharply higher interest rates, and recent monetary policy actions. The supply of production credit seems adequate to meet demand in most sections of the District. On balance, higher interest rates and increased costs of other farm inputs have combined to reduce demand for farm loans at banks, production credit associations, and Federal land banks well below a year ago. Bank supplies of loanable funds declined during the quarter but remained only slightly below year-earlier levels. While there is some evidence that liquidity pressures are greater than in the same period last year, loan-to-deposit ratios of surveyed banks averaged only fractionally above a year ago. Loan repayment rates have slowed and are sharply below a year earlier, while renewals or extensions are significantly higher. Moreover, collateral requirements have risen to a new high.