July 1, 1980
The level of business activity in the Fifth District fell sharply over the past month. Of manufacturers surveyed over two-thirds experienced declines in shipments, new orders, and order backlogs. Inventory accumulation, particularly of finished goods, occurred across a broad front. Employment among manufacturers surveyed also fell on balance. Retail sales activity continued to slip in June as both total sales and relative sales of big ticket items fell. Retailers, however, appear to have trimmed inventories further and forestalled serious problems in that area. Contacts in the consumer lending area indicate that consumer credit demand continues to weaken around the District. Furthermore, there is little evidence that lenders are eager to make additional loans, despite the recent declines in interest rates. Respondents in our latest survey express somewhat less pessimism about the future than in other recent months, although most expect some further deterioration in business conditions in the period immediately ahead.
Of Fifth District manufacturers responding to this month's survey over two-thirds report declines in shipments, new orders, and order backlogs during the past few weeks. At the same time inventories continued to expand as did concern over the level of current stocks. Fully half the respondents report stocks of finished goods up from a month ago, and well over half find current levels excessive. Employment was also down among manufacturers and most establishments reduced the length of the workweek. The number of respondents finding current plant and equipment capacity in excess is substantially greater than a month ago, but there remains very little sentiment for altering current expansion plans.
In the retail sector sales were down as were relative sales of big ticket items. Retailers, however, are still able to keep tight control over inventories, which so far have not become a serious problem. Indications are that employment among retailers was down somewhat from a month ago. In general, however, retailers find the current numbers and sizes of outlets appropriate.
Survey Responses suggest that price increases have become somewhat less widespread in recent weeks. Both manufacturers and retailers report less frequent rises in employee compensation this month. Manufacturers report increases in prices, both paid and received, as less common now. Some retailers continue to report declines in prices received. The pessimism which has pervaded our survey for some time lifted slightly in the latest survey period, but most respondents still expect some further deterioration of business conditions over the next six months.
In general consumer credit demand in the District remains weak, particularly for automobile and personal cash loans. Mortgage lending has apparently made little response to recently reduced rates. Neither borrowers nor lenders seem eager to initiate loans at this time. Richmond directors note a recent increase in the pace of repayments of credit-card and other consumer installment debt balances. Directors from banks and thrift institutions do not find that the 6-9 percent lending growth guideline has been a binding constraint on lenders.
June weather varied widely throughout the District, with extremely dry conditions prevailing in the Carolinas—especially in South Carolina—and in Virginia. Elsewhere, soil moisture supplies were mostly adequate. Corn and pastures appear to have been affected most. While some relief from the dry weather occurred during the third week of June, more rain is still needed. Corn at that time was reported to be beyond recovery in some areas. The peach harvest now in progress is expected to be 12 percent under the 1979 crop. Expectations point to sizable reductions in the North and South Carolina crop but significantly larger crops in Maryland and the Virginias.