Beige Book Report: Philadelphia
August 11, 1981
Reports from the Third District indicate that business activity in August has been showing some signs of expansion, but still remains mixed. In the industrial sector, manufacturers say general activity appears to be stronger this month than at any other time so far this year. As for the future, area manufacturers are maintaining their optimism, anticipating a widespread upswing within the next six months. Local retail merchants report August sales to be up compared to last year's levels and appear to be more optimistic than they have been in recent months about the future. Area retailers expect sales to grow by the end of the 1981 and, in order to meet the increased demand, they plan to make some additions to stock levels. Third District bankers indicate mixed loan activity in August. Business loan volume is slightly ahead of year-ago figures, while consumer loans are said to be soft, for the most part. Local bankers forecast no change in consumer loan volume over the next six months, but predict slight gains in business borrowing.
Industrial
Manufacturers responding to the August Business Outlook Survey say
that the local industrial sector is showing some signs of expansion
this month, the strongest such indication so far this year. This
report, however, comes on the heels of a reported decline in July's
manufacturing activity which may have been only a seasonal slowdown,
typical of area industrial activity in July.
Supporting the claims of renewed strength, new orders are said to be up for the first time since March and shipments have increased as well this month. Manufacturers have added to inventories, although only fractionally, putting at least a temporary halt to the recent cuts in stock levels. It appears that factory employment has been helped by the industrial spurt too. Survey participants report small increases in their payrolls but no change in working hours is indicated.
Looking ahead, survey participants are maintaining their optimism about economic conditions over the next six months, anticipating a widespread upswing in general industrial activity by the start of the new year. In terms of specific indicators, about two-thirds of the survey respondents forecast climbing levels of new orders and shipments between now and February. Plans for meeting the anticipated demand include hiring more labor, lengthening the average workweek, and boosting expenditures on plant and equipment.
On the inflation front, prices paid to suppliers have risen again for about 45 percent of the survey participants in August, and over one-quarter of the area manufacturers responding to the survey report charging higher prices for their finished products. Prices are expected to continue climbing, as 9 out of 10 of the survey participants anticipate higher input costs by February and about 7 out of 10 plan price hikes for the goods they sell.
Retail
According to local retailers, August sales are up compared to year-
ago figures by 5 to 20 percent, but only slightly, if at all, ahead
of expectations for this period. District merchants attribute the
gains to, among other things, the expected tax cut, which may have
given consumers a psychological boost. Sales of soft goods,
particularly apparel, shoes, and small household items, are doing
well, while big ticket items remain sluggish.
As for the future, area retailers are more optimistic than they have been in recent months, and are hoping to be posting year-over-year sales gains of about 9 percent by the end of 1981. Once sales start to climb, retailers plan to increase their stock levels. As one contact put it, though, we should expect "only a marginal increase, certainly nothing alarming."
Wholesale
There has been no clear decline in Third District wholesale firms'
orders from abroad, despite a strengthening dollar and recessionary
condition in parts of Europe. Orders from Canada and Japan appear to
be stronger than those from other nations.
Financial
Third District bankers report mixed loan activity in August. C&I
loan volume is up 4 to 8 percent over year-ago figures, with some
banks reporting below-prime lending which has, at least in part,
boosted their business loan volume over budget by about 2 percent in
August. Also, they say, aggressive marketing has helped. Consumer
loans, on the other hand, are flat to slightly off, about 4 percent,
and generally below budget. Looking ahead to the start of the new
year, area bankers expect business loans to be showing gains of 2 to
6 percent over early 1980 levels, while retail loans are expected to
remain soft.
Reports of deposit flows in the Third District indicate demand deposit levels to be mixed, running 2 percent below to 4 percent above last year's figures. Time and saving deposits, on the other hand, are 4 to 10 percent ahead of August '80 levels. Bankers say depositors are leaning toward longer-term higher-yielding time deposits. In an effort to aid deposit flows, a number of area banks and thrifts has been planning to offer long-term (more than four years) time deposits carrying an unregulated interest rate, before such instruments were barred by a U.S. District Court ruling on July 31.
Third District bankers are currently quoting a prime rate of 20.5 percent. Cuts in the prime are expected to come soon, leaving the rate 150 to 450 basis points below its current level by year end.
Tourism
Summer business at area vacation spots in the Third District is
reported to be mixed this season, according to spokesmen from major
resort areas in New Jersey, Pennsylvania, and Delaware. Business at
South Jersey seashore resorts is off slightly from last year, but
merchants there expect trade to pick up as they head into the rest
of the season. The slowdown seems to be stemming primarily from a
reduced number of longer-term vacationers. The number of daytrippers
to the shore is up compared to a year ago, boosted by a plentiful
supply of gasoline, "packaged" bus trips, especially to Atlantic
City casinos, and generally good fishing. Nevertheless, the "bottom
line," according to seashore businessmen, is that tight household
budgets have kept the lid on business so far this season.
Such has not been the case in Delaware resorts. Tourist volume there is running about 9 percent ahead of 1980 levels and occupancy rates are said to be close to 100 percent. Delaware officials say their increased business this season is owed, at least in part, to a major advertising campaign.
Pocono Mountain vacation spots are having a fairly good season in terms of volume. But while tourist trade is up about 9 percent over last summer, people are again spending less money, leaving business, as measured by dollar volume, about 2 percent behind 1980 levels. Again, tight household budgets are cited as a major factor by Pocono officials.