Beige Book Report: Philadelphia
September 30, 1981
Indications from the Third District point to mixed business activity for the month of September. Area manufacturers say industrial activity is showing some signs of expansion, for the second month in a row, which could signal the start of the upward trend they've been predicting for some months. As for the future, they project a strong boost in industrial activity by March. Local retail merchants report mixed sales volumes in September but look forward to a strong Christmas season this year. In the financial sector, District bankers indicate sluggish loan activity. Business loan volume is slightly ahead of year-ago figures, while consumer loans are said to be down sharply in September. Area bankers forecast little to no improvement in loan activity over the next six months. On the residential construction side, sales have dropped off sharply, owing primarily to a tight mortgage market according to area real estate contacts. Some new groundbreakings for townhouses and condominiums are reported, but area contractors and developers are said to be holding off on starts for detached single homes.
Industrial
Area industrial activity is showing more signs of expansion in
September. Manufacturers responding to the September Business
Outlook Survey report, for the second consecutive month, a slight
pickup in overall manufacturing activity. This could signal the
start of the upward trend in business they've been predicting for
some months. Reflecting the upturn in industrial activity in
September, reports of rising new orders and shipments are more
widespread than at any time since April 1977. On the employment
front, the situation looks a little better as well this month.
Manufacturers responding to the survey report lengthening the
average workweek, marginally, for the first time in over two years.
However, no real changes in payrolls are reported.
For the longer term, survey participants continue to be optimistic as over one-half of the respondents are projecting a strong boost in industrial activity by March. New orders and shipments are expected to take off and producers' backlogs to swell by then also. The upbeat outlook may be good news for area labor as well, as survey participants plan to increase factory payrolls and add hours to the workweek within the next six months. Growing expenditures on plant and equipment are also forecast at 1 out of 3 firms polled.
Local industrial prices are up again in September with over one-half of the survey participants paying more for raw materials than they did in August and about one-third charging more for their finished products. Area manufacturers expect inflation to continue over the next two quarters, as 9 out of 10 survey respondents anticipate higher input costs by March and nearly 8 out of 10 are planning price hikes for the goods they sell.
Retail
Although September is traditionally a big month for "back to school"
business, overall retail activity remains mixed. Reports of current
dollar sales range from 4 percent below to 10 percent above
September '80 levels. Area retailers say sales of soft goods
(apparel, shoes, and small household items) and luxury goods
(electronic equipment and entertainment systems) are making a better
showing than other lines this month. Credit card sales continue to
be strong and collection is good.
As for the future, District retailers are optimistic about the next six months. Some area contacts say the October 1 tax cut may give sales an added boost, about 2 to 3 percent. Other merchants, on the other hand, fear the Administration's budget cuts will pinch household budgets even more, leaving retail sales volume lower by March. Nevertheless, a strong Christmas season is expected and retailers are beginning to build up their stock levels. Inventories remain in-line and inventory-sales ratios are reported to be healthy.
Financial
Third District bankers report mixed loan activity in September. C&I
loan volume is up 5 to 10 percent over year-ago figures, with some
bankers reporting below-prime lending which has boosted their
volumes to the upper end of this range. Consumer loan activity,
however, is down as much as 21 percent this month from a year ago
and is well below budget. Business borrowing is in-line with area
bankers' expectations, for the most part. Looking ahead to March,
local bankers say they are not too optimistic about the next six
months. Some contacts are projecting commercial loans to increase
only modestly, about 2 to 3 percent, if at all, while others
forecast a slight slippage, 5 to 6 percent, in business borrowing.
No improvement in retail loan activity is expected over the next two
quarters as area bankers expect consumer loans to slide further by
March.
Reports of deposit flows in the Third District indicate demand deposit levels to be mixed, running 11 percent below to 2 percent above last year's figures. Time and savings deposits, on the other hand, are up 4 to 11 percent and generally as planned.
Local bankers in the Third District are currently quoting a prime rate of 19 1/2 percent. Area contacts are anticipating a slowdown in the economy over the next two quarters which, they say, will drop the prime to about 16 to 16 1/2 percent by March.
Housing
Housing sales in the Third District are down sharply this month
compared with year-ago levels, according to area brokers. New
residential sales are reported down 50 to 75 percent from September
'80 figures, while resales have fallen 25 to 50 percent. Prices are
said to be softening by as much as 10 percent on new homes and by
about 5 percent on resales. Mortgage rates of up to 18 1/4 percent
have discouraged many buyers. Area brokers say if mortgage rates
drop 4 to 6 points by next spring, their sales could increase by 25
percent.
On the construction scene, activity appears to be mixed. No new starts on detached single homes are reported, although contacts say new groundbreakings for townhouses and condominiums in downtown Philadelphia and the New Jersey shore are picking up.