Beige Book Report: Richmond
September 9, 1980
Responses to our latest survey of Fifth District business conditions suggest that the level of activity has stabilized over the past month. Manufacturers, on balance, continue to report month-to-month declines in shipments and new orders, but the declines narrowed sharply in August as more individual respondents experienced increases in these measures. Backlogs of orders continued to fall over the month, but here too the decline was much less widespread than in recent months. Inventories were little changed in absolute terms, but fell relative to desired levels. Manufacturing employment continued to fall as did the average workweek. Retail sales were unchanged to up slightly, but sales of big ticket items declined somewhat. Demand for mortgage loans has apparently picked up in most parts of the District despite the recent back-up in rates. There is little indication of any substantial increase in demand for commercial and industrial loans.
For the most part consumer spending continues to lag. Survey responses suggest little change in overall retail sales in the past month and continued weakness in big ticket items. Department store sales are up slightly from a month ago, but continue to run well behind year earlier levels. Several of our directors note recent improvement in automobile sales in their respective areas, but this is by no means universal.
Most indications are that residential construction is improving in many areas. Gains to date, however, have been modest on balance. The recent back-up in mortgage interest rates and pockets of tight supplies of mortgage funds are apparently impeding progress toward a broadly based recovery in District construction.
Business inventories continued to improve relative to desired levels during the latest survey period. Manufacturers report little change in actual inventory levels, a slight increase in stocks of finished goods being nearly offset by reduction of materials on hand. Nonetheless, there is much less concern over excessive stocks than in most recent months, and one-sixth of all manufacturers surveyed find current inventory levels inadequate. Retailers apparently experienced further inventory accumulation over the month, but they, too, find current stocks nearly in line with desired levels.
Most manufacturers surveyed find current plant and equipment capacity appropriate to their needs. Almost none feels any change in current expansion plans is necessary. Among our directors, however, there is some feeling that what little improvement there has been in the demand for commercial and industrial loans is at least partially due to expansion activity.
Price increases were somewhat more widespread among manufacturers in the latest survey period. Nearly half the respondents report paying higher prices over the month, while almost 25 percent received higher prices. Among retailers, however, there was little change in the frequency of price increases since last month. Gains in employee compensation, among both manufacturers and retailers, ran at about the same pace as in most recent months.
Employment rose slightly among retailers over the past month, but continued to fall sharply among manufacturers surveyed. There are scattered reports, however, of recalls in such industries as auto parts and construction. One director cites the absence of plant closings and further layoffs in his area as a sign of stabilizing activity.
Expectations of District businessmen turned positive during August. For the first time in over a year survey respondents expect business to be no worse in six months than it is now. Over one-third of our manufacturing respondents expect the level of business activity nationally and within their respective firms to improve over the next two quarters. Very few expect conditions to worsen. Retailers also expect business to be at least as good in six months as it is now.
The drought and searing temperatures that continued during August and early September have cut crop production prospects significantly, pointing to sharp reductions in 1980 farm income. Corn, soybean, and peanut farmers will probably suffer the biggest losses. Reportedly, corn yields in many cases will not cover the costs of production, and some soybeans have been cut for hay. Hardest hit areas are in Virginia and the Carolinas. Because of the drought conditions, 70 counties and three independent cities in Virginia and 67 counties in North Carolina have been designated as disaster areas, making farmers in these localities eligible for low- interest Federal loans.
Flue-cured tobacco marketing, now in full swing in all belts, is characterized by a large proportion of low-quality offerings. Season average prices to date have thus averaged only 1.6 percent above the year-ago level. With total sales volume just slightly above a year earlier, the value of gross sales is up only 2 percent.