November 10, 1981
Overview
Most indications are that the number of soft spots in the Fifth
District economy increased over the past month. In the manufacturing
sector, weakness which began to develop in September has spread and
become pervasive in some industries, textiles and primary metals in
particular. Retail sales continue to be depressed by very weak
demand for durable goods, including autos, and building materials.
Residential construction continues very slow despite pockets of
relative strength, but commercial and industrial construction is
still lending support to the industry. Several of our Directors cite
an increasing incidence of financial difficulties among auto
dealers, farm machinery and equipment dealers, construction firms,
and even some wholesalers. With further improvement in crop
production prospects and flue-cured tobacco prices still running
well above a year ago, the outlook for increased gross farm income
in 1981 continues favorable.
Manufacturing
Responses from our sample of manufacturers suggest that on balance,
shipments, new orders, and order backlogs all declined in October.
Once again, inventory performance was mixed as manufacturers held
stocks of materials at the September level but experienced some
accumulation of finished goods. Total inventories remain well above
desired levels. Employment and the length of average work week were
also down markedly according to these respondents. Over half of the
manufacturers surveyed find current plant and equipment capacity
somewhat in excess, but there is still very little sentiment for
altering current expansion plans. Interestingly, the diffusion of
responses suggests an actual decline in prices received by District
manufacturers and a decided reduction in the incidence of increases
in prices paid. Employee compensation was virtually unchanged over
the month. Among individual industries, furniture and consumer
electronics continue soft while the weakness in the textile sector
seems to have spread significantly in recent weeks. In addition,
primary metals turned down within the latest survey period.
Construction related industries, particularly stone, clay, and glass
products, remain very slow. District manufacturing continues to get
some support from the electrical equipment, chemicals, and
shipbuilding groups, however.
Consumer Spending
The slump in the retail sector appears to have continued through
October, and may have widened. Sales of big ticket items and
building materials have certainly not improved. There are
indications that consumers have begun to cut back in other areas
such as apparel.
Housing and Construction
Construction activity does not seem to have changed much in recent
weeks. Residential construction continues to be generally depressed
despite pockets of substantial activity. Such areas of strength,
however, may have become fewer over the last month. Other
construction is still holding its own in most areas.
The Financial Sector
Several of our Directors from the financial sector anticipate
financial problems developing among businesses in their respective
areas. Their comments suggest that businesses generally are under a
great deal of financial stress and that already specific problems
are on the rise. Although most current problems involve auto dealers
and construction firms, these Directors do not expect all future
problems to be restricted to these sectors.
Farm credit conditions changed little between the second and third quarters except for a further rise in interest rates. Generally, however, conditions varied quite a bit from a year ago. Farm loan demand at banks was considerably weaker, while the availability of loanable funds was much greater. Both loan repayment rates and requests for renewals or extensions indicated significant improvement. Bank interest rates on farm loans were sharply-higher. And collateral requirements were stiffer. Meanwhile, liquidity pressures facing some rural banks declined.
Our Directors in the financial sector have found that most of the funds going into "all-savers" certificates are being switched from other accounts at the same institution. Individual estimates generally lie in 50%-90% range.
The Outlook
Expectations held by our survey respondents took a decided turn for
the worse since the last survey. Almost half of the manufacturers
surveyed expect the level of general business activity nationally to
decline over the next six months, and nearly as many expect a
similar performance in their respective market areas. On balance,
even the outlook for production in their individual firms has turned
negative. Very few manufacturers expect improvement at any level
over the coming two quarters and no retailer surveyed forsees any
improvement nationally, locally, or for his respective firm.