Beige Book Report: Philadelphia
June 30, 1981
Reports from the Third District indicate that business activity is sluggish to mixed, but hold some hope for improvement by year-end. Manufacturers report no real change in overall industrial activity, with payrolls holding steady for the fifth consecutive month. They expect a sharp upturn in the industrial sector to come some time in the next two quarters. Local retail merchants say they are well ahead of last year levels, owing, at least in part, to big promotional campaigns. The balance of '81 looks good also, as retailers expect sales to continue growing. Third District bankers report sluggish to mixed loan activity. C&I loan volume is up marginally in June, but consumer loans are down sharply. Looking ahead to December, District bankers forecast slight improvement in business borrowing and expect the current decline in retail borrowing to level off. On the residential construction scene, sales have dropped off sharply as high mortgage rates have discouraged many buyers, according to area real estate contacts. Contractors and developers are holding off on new groundbreakings until they are more certain about future mortgage rates.
Industrial
Area manufacturers responding to the June Business Outlook Survey
report no change in the level of overall industrial activity from
last month. Specific indicators are mixed. Factory shipments are up
marginally in June, while new orders are off slightly for the first
time this year. Inventories, following last month's spurt, have
slipped back fractionally. As for employment, the first half of 1981
has been a period of stagnation for area factory workers and this
month appears to be no exception. June survey participants report,
for the fifth consecutive month, no real change in factory
employment. However, a marginal increase in the average workweek is
reported.
Despite the sluggishness that has beset area industry since January, local manufacturers have retained their optimism. Respondents to the June survey are confident, predicting a strong boost for business within the next six months. Over one-half of the respondents anticipate growth in new orders between now and December, while a slightly smaller portion project increased shipments by year-end. Producers' backlogs are expected to swell marginally. The upbeat outlook may be good news for area labor, as manufacturers plan to increase payrolls and lengthen working hours in the second half of 1981.
On the inflation front, industrial prices are up again in June. Over 60 percent of the survey participants report paying more for raw materials than they did a month ago and nearly 40 percent say they are charging more for the products they sell. Area manufacturers expect inflation to continue throughout the balance of 1981, as over three-quarters of the respondents expect input costs to increase by year-end and about two-thirds plan to raise their own prices.
Retail
According to area retailers, June sales are well ahead of last
year's levels, surpassing all expectations by a good bit. Reports of
sales volume in June range from 10 to 15 percent above mid-1980
figures, as big-promotional campaigns helped to boost business.
Credit card sales appear to be about even with early 1980 levels,
matching the volume that existed before the 1980 credit restraint
program was instituted. Credit collections are fair to good. Sales
of soft goods, particularly men's and women's quality sportswear,
are doing well, and big ticket items are starting to pick up.
For the longer term, area merchants are optimistic, expecting sales in coming months to run 6-8 percent above year-earlier figures. According to some contacts, consumer confidence appears to be growing with the anticipation of tax cuts and further easing of inflation. Local merchants look for a strong finish in 1981, anticipating a big fourth quarter as seasonal factors give sales an added boost.
Financial
Third District bankers report sluggish-to-mixed loan activity in
June. C&I volume is up modestly, 4 to 6 percent, over year-ago
figures, which is in line with area bankers' expectations for the
most part. Consumer loans, on the other hand, are off as much as 15
percent from June '80 levels. In order to boost business loan
demand, some below-prime lending is taking place, but bankers are
shying away from making fixed-rate loans. Looking ahead to the
balance of 1981, bankers expect business loans to show slight
improvement by year-end, and retail loans are expected to bottom
out, putting a halt, at least temporarily, to the steady decline in
consumer borrowing observed since April 1980.
Deposit flows in the Third District are also mixed. Demand deposit levels are about 4 percent below year-ago figures as area bankers are still adjusting to the institution of NOW accounts. Savings and time deposits are up slightly this month, and CDs are in line with budgets.
Local bankers are currently quoting a prime rate of 20 percent. Projections of the prime indicate an anticipated turnabout from the recent trend of rising rates. Cuts in the prime are expected to leave the rate 300 to 500 basis points below its current level by December.
Housing
Housing sales in the Third District have dropped sharply again this
month compared with year-ago levels. Residential sales are down as
much as 50 percent from June '80 figures. With conventional mortgage
rates at 16 1/2 percent, more and more buyers are pulling out of the
market, causing a softening in residential prices. Contractors and
developers are holding off on new groundbreakings until interest
rates come down. Even then, however, many builders are, as one
contact put it, "sitting on the sidelines" waiting for pre-sale
commitments before going back to work.