Beige Book Report: Richmond
August 5, 1980
Most indications are that business activity in the Fifth District continued to decline through July. Manufacturers responding to our monthly survey experienced further declines in shipments, new orders, and order back-logs. Manufacturing employment also declined, as did the average workweek. Inventories continued to rise relative to desired levels as stocks of finished goods rose broadly and materials on hand showed little change. Retailers around the District also report continued slowing of activity. Total sales and relative sales of big ticket items declined in July. Manufacturers foresee further declines in activity over the remainder of the year while retailers are coming to expect a turnaround of some magnitude in that time frame. Large banks have experienced a slight decline in total loans in recent weeks as lower volumes of commercial and industrial and personal expenditures loans were only partially offset by gains in loans secured by real estate. While the current outlook for many segments of the Districts' agricultural economy is far from rosy, farm credit conditions have improved.
Of manufacturers contacted recently over one-third experienced declines in shipments and new orders over the past month. Much of this weakness was concentrated in such industries as chemicals, primary metals, and machinery and equipment lines. Other industries, particularly textiles, apparel, furniture, and building materials and supplies appear to have held their own in recent weeks while paper lines made some gains. Nearly half of the respondents reduced order backlogs over the month. Inventories were up from the previous survey period as finished goods were accumulated by nearly half the firms and stocks of materials were essentially unchanged. Nearly half of our respondents view current stocks as excessive, a somewhat lower proportion than a month ago. Manufacturing employment and the length of the manufacturing workweek continued to fall sharply. Approximately one-quarter of the respondents find current plant and equipment capacity in excess, but we found no sentiment whatever for cutting back current expansion plans.
On balance, retail sales among survey respondents were down but the performance of individual firms suggests that in some areas sales activity was stable to slightly improved from June. Relative sales of big ticket items were also down, but this movement, too, was not widespread. Most retailers report further inventory accumulation in recent weeks, but generally find current stocks about right. Employment at retail establishments shows no significant change from the previous survey period. Most respondents remain satisfied with the current number and size of outlets. Some respondents continue to encounter customer resistance to regular prices. There was also some mention of receivables building as customers take longer to pay bills.
Over one-third of our manufacturing respondents expect further declines in activity, nationally, locally, and in their respective firms, over the rest of the year. On the other hand approximately one-fifth now see improvement taking place over that period. All retailers surveyed, however, expect conditions to be at least as good in six months as they are now. Price increases, increasingly uncommon among manufacturers, became more widespread among retailers over the past month.
Drought and searing temperatures have cut crop prospects and broiler output, adding to the financial troubles of many farmers. But interest rates on farm loans, though still well above a year ago, have dropped markedly, reducing the cost of farm credit significantly. Bank supplies of farm loan funds, which remained relatively ample throughout the period of the expected crunch, have improved from both the spring quarter and year-ago levels. Both loan repayment rates and the number of renewals or extensions showed improvement over the previous quarter, and collateral requirements were sharply lower. Farm loan demand at banks continued to be substantially weaker than usual, thus helping to ease the liquidity pressures that had faced some banks heavily involved in farm lending. Loan-to-deposit ratios of banks reporting in our latest survey of District farm credit conditions averaged fractionally higher than in the spring quarter but well below a year earlier.