Beige Book Report: Philadelphia
January 28, 1981
Reports from the Third District indicate that business activity is sluggish at this time, but hold some hope for improvement by mid-year. Manufacturers report no change in overall industrial activity, but continue to make small cuts in payrolls and working hours. They expect a sharp upturn in the industrial sector to come sometime in the first two quarters, though. Local retail merchants report sales to be slow in January and expect only slight improvement, at best, by July. Credit collections are said to be good. In the financial sector, area bankers report mixed loan activity in January as C&I loan volume is up but consumer loans are off. Looking ahead to July, District bankers expect modest increases in overall loan activity. On the residential construction scene, sales are down again this month as high mortgage rates have discouraged many buyers. In the meantime, contractors and developers are holding the line on new groundbreakings.
Industrial Activity
The new year appears to be starting off on a stable note, as area
manufacturers responding to the January Business Outlook Survey
indicate no real change from last month in overall industrial
activity. In terms of specific indicators, both new orders and
shipments have increased marginally in January, and inventories
appear to be growing slightly as well. On the employment front,
however, local manufacturers continue to make small cuts in payrolls
and working hours.
Looking ahead to the next six months, survey respondents remain optimistic, anticipating a significant upswing in general industrial activity. Over one-half of the survey participants expect new orders to grow in the first half of 1981, while a slightly smaller portion project increased shipments between now and July. Manufacturers are playing a close hand, however, and are planning cautiously. Respondents to the survey are projecting no changes in stock levels or the average workweek and plan to hold off on new hirings as well. Increased expenditures on plant and equipment, however, are anticipated.
Prices are up again in January in the industrial sector. Input costs are higher for about 65 percent of the survey participants and almost 40 percent report charging more for their finished products. For the longer term, 9 out of 10 of the responding manufacturers expect to be paying higher prices for raw materials by July, while about 8 out of 10 plan price hikes for the goods they sell.
Retail Activity
Following last month's record Christmas sales, area retailers report
sales to be sluggish in January compared to year-ago figures.
According to District retailers, this is pretty much in-line with
their expectations, though, as most shoppers did their major buying
last month for the Christmas holiday. Credit card sales are about
even with last year's levels and collections are very good. Sales of
soft goods, particularly men's and women's quality sportswear, are
doing well, while domestic goods such as blankets, towels, and
sheets are moving more slowly.
Area retailers continue to plan cautiously for the next six months, expecting sales to run only slightly ahead of year-ago figures, owing partially to the lack of strength in consumer disposable income. According to local merchants, sales performance in the first quarter will set the trend for the first half of 1981. At best, only slight improvement is expected by mid-year.
Financial Activity
Third District bankers report mixed loan activity in January. C&I
loan volume is up 4 to 16 percent over year-ago figures, with some
banks reporting below-prime lending which has boosted their loan
volumes to the upper end of this range. Consumer loan activity,
however, has dropped 5 to 9 percent this month, but some improvement
is expected by mid-1981. January's loan activity is in-line with
area banker's expectations, for the most part. Looking ahead to
July, contacts expect business loans to show a modest increase,
about 5 percent. Retail loans are expected to grow as well, but at a
slower rate. District bankers feel that consumers anticipate lower
rates in the near future, which will "increase their willingness to
borrow." were not caught in short supply last month
despite the last minute Christmas rush and, therefore, January
inventories are in good shape. Area retailers remain cautious and
plan no changes in stock levels within the next two quarters.
Local bankers are currently quoting a prime rate of 20 percent. Loan activity should be sluggish over the next six months, they say, which will cause the prime to drop between 300 to 575 basis points from its current level.
With the legalization of NOW accounts effective December 31, 1980, area bankers report vacillating deposit flows in January. The rate of growth of the accounts is faster than had been anticipated for the most part.
Housing
Housing sales in the Third District are down sharply again this
month compared with year-ago levels. New residential sales are
reported down 30 to 35 percent from January '80 figures, while
resales have fallen 25 to 50 percent. Prices are reported to have
been stable over the last six months because mortgage rates of up to
15 percent have discouraged many buyers. At the same time,
contractors and developers are holding off on new groundbreakings
until interest rates come down. Even then, however, there is some
speculation that builders may go back to work only if buyers can
secure a mortgage commitment ahead of time.