Beige Book Report: Philadelphia
August 5, 1980
Indications from the Third District in July point to a slowdown in business activity. Manufacturers in the District say industrial activity has taken another large drop this month, and retailers report sales to be even with a year ago. As for the future, manufacturers anticipate an upward swing six months from now, but retail merchants expect sales to remain flat through year-end. In the financial sector, C&I loan volume is up, but remains below plan. Forecasts indicate little change through year-end as the recession bottoms out.
Manufacturers responding to the July Business Outlook Survey report another significant drop in area industrial activity. July seasonal factors have combined with the continuing downturn to produce the largest one-month drop in general business activity since December 1974. Both new orders and shipments have taken a sharp dip and producers' backlogs continue to shrink. Inventory trimming has resumed, after a temporary halt last month, and the employment situation has worsened somewhat. Both payrolls and the average workweek have declined significantly.
For the longer term, survey participants expect an upward swing in general business activity six months from now. New orders and shipments are expected to increase and manufacturers are planning to add to inventories although only marginally. The brightened outlook may be good news for labor as respondents expect to maintain the current level of factory employment and lengthen the average workweek.
Prices are up again in July in the industrial sector. Input costs are higher for about 40 percent of the survey participants and approximately 30 percent report charging higher prices for their finished goods. As for the future, nearly 80 percent of the respondents expect to be paying more for raw materials and 70 percent plan price hikes for their products.
Area retailers report no change in sales in July as compared to the sales levels of July 1979. Local merchants had anticipated this slowdown though, and planned conservatively, so inventory-sales ratios are "in line." Sales of soft goods, particularly men's and women's apparel, are strong while big ticket items are still very sluggish. An exception to this, however, is air conditioners which, owing to the recent heat wave, are in high demand. Suburban stores are doing a little better than the center city stores with sales up slightly over last year, owing to longer operating hours and a differing market. Credit sales are down slightly but area retailers expect a turn-around of credit sales as the credit situation is resolved and stabilizes.
Retailers continue to plan cautiously as sales are expected to remain flat through year-end, despite December Christmas buying. Local merchants plan no changes in inventories. A steady, no-growth schedule will be followed as retailers hope to keep their inventory- sales ratios healthy.
Area bankers report mixed activity in July. Reports of C&I loan volume range from 3 to 11 percent over year ago figures, but are generally below plan. Consumer loans, on the other hand are down, and are expected to decline even further. Looking ahead to the next six months, most contacts are forecasting little change between now and year-end as the recession bottoms out.
Banks in the Third District are currently quoting a prime rate of 11 percent. Projections of the prime indicate a continued drop, leaving the rate 100 to 200 basis points below its current level by year- end. Deposits are up moderately at commercial banks as corporate customers increase their deposits.
Summer business at Pennsylvania and New Jersey vacation spots is reported to be very strong this year as compared to 1979, according to spokesmen from the New Jersey shore, Pocono Mountain resorts, and area theme parks. Excellent fishing and high gas prices have kept vacationers close to home this year, benefiting the local resort areas. Tourist volume at the New Jersey shore is up 20 to 25 percent over 1979, with occupancy running 90+ percent. Pocono Mountain tourist trade is reported to be between 30 and 50 percent higher than last year and executives at the area's major amusement parks report that their business is up also, about 9 percent over last year. Despite the increase in the number of vacationers, however, less money than expected is being spent at most resorts, owing to the current recession and the drain to the Atlantic City casinos. The total effect of the casinos is unclear though. Many food and service dollars that might be spent widely over South Jersey are going to Atlantic City instead. However, Atlantic City cannot offer adequate accommodations for all its customers, and the spillover is often absorbed by the surrounding shore spots, giving their business a boost. A spokesmen from the Pocono Mountain Vacation Bureau reports a loss of their market to Atlantic City, as well, mainly senior citizens, but the gap is filled by more families and single people who are still keeping their business strong.
As for the rest of the season, officials at the summer vacation resorts are optimistic and expect to continue to increase their volume as they head into the peak of the summer season. Advance reservations in the shore area are booked as far ahead as late September to mid-October and the convention trade in Atlantic City looks good. Given continued good weather, entertainment park operators are striving to maintain the strong and steady trade they are presently experiencing.