Beige Book Report: Philadelphia
December 16, 1981
Indications from the Third District point to a slowdown in business activity for the month of December. Area manufacturers report a substantial decline in industrial activity this month, but anticipate improvement by mid-1982. Industrial prices are up in December, but at a smaller portion of surveyed firms than at any time since December 1977. In the retail sector, December sales are off to only a fair start, but are in-line with retailers' expectations for the most part. Most merchants say shoppers are holding off on high volume holiday buying until later in the month. Third District bankers report mixed loan activity in December. Consumer loans are down from a year ago, while C&I loan volume is better, but still not strong. Local bankers forecast little to no improvement in business borrowing over the next six months, but anticipate growing strength in retail loan activity by mid-1982.
Industrial
Respondents to the December Business Outlook Survey report a
substantial decline in area manufacturing activity this month as the
recession settles in the Delaware Valley. About 65 percent of the
executives polled in December indicated some deterioration in the
business climate, while only 7 percent noted improvement. These
results suggest the most pervasive one-month drop in local
industrial activity in over a year. In specific terms, new orders
dropped for the second month in a row, and shipments are down as
well. December also marks the fourth consecutive month in which
inventories have been cut back. On the labor scene, the situation
appears to have worsened, as the largest percentage of respondents
since the survey began reports cuts in factory employment
accompanied by a further shortening of working hours.
Despite the slump that has beset area industry, manufacturers remain optimistic, anticipating a general upswing in business within the next six months. About two-thirds of the survey participants project climbing levels of new orders and shipments between now and June, and the anticipated step-up in manufacturing may prove beneficial to labor, as respondents plan to increase factory work forces and lengthen the average workweek. It appears that manufacturers will wait for stronger signals on the economy before really preparing for a boom though. Many plan to keep a lid on inventories and capital expenditures over the next six months.
Industrial prices are up again in December, but at a smaller portion of surveyed firms than at any time since December 1977. Just over one-quarter of the respondents report paying higher input costs than they did in November, and only about one-tenth say they are charging more for their finished products. Looking ahead, manufacturers expect inflation to rekindle, however, as 8 out of 10 of the survey participants expect to be paying more for raw materials by mid-1982 and nearly 6 out of 10 plan price hikes for the goods they sell.
Retail
Retail merchants in the Third District say December sales are off to
only a fair start this month, running about 8 to 10 percent ahead of
last year's sales volumes. This leaves only small gains in real
terms. The sluggishness comes as no surprise to most store
operators. Local retailers say that most shoppers are still
comparing prices on their Christmas purchases at this point, and
high volume buying won't get underway until later in the season. In
an effort to bolster sales volumes, and compensate for a shorter
Christmas shopping season this year, many area merchants are keeping
longer hours this season, running big promotions, and marking down
merchandise earlier than usual. One major chain already kept its
doors open until midnight for a special one-day only sale.
As for the remainder of the Christmas shopping season, area retailers expect to finish ahead of last year, but not by much. Shopkeepers generally feel that uneasiness about the economy will make shoppers somewhat reluctant to part with their money, and they expect to finish the season only slightly ahead of last year, perhaps by as little as 10 percent in nominal terms. As a result, most retailers are keeping a close watch on stock levels. Although no shortages are expected, storeowners are not laying in as much merchandise as they did last year.
With regard to overall sales in the fourth quarter of 1981, local retailers expect to show only slight improvement over year-ago levels. They hope for current dollar sales gains of about 7 1/2 percent.
Financial
Third District bankers report soft-to-mixed loan activity in
December. Consumer loan volume is down as much as 20 percent, but
this is pretty much by design, according to local bankers. Contacts
say they are holding off pushing consumer loans until the rates come
down a bit further and marketing efforts might prove more fruitful.
Reports of C&I loan volume range from 3 percent below to 10 percent
above year-ago figures. Some banks report modest inventory financing
which has, at least in part, boosted their business loan volume to
the upper end of this range. In attempts to bolster business loan
demand, many banks have increased below-prime lending activity and
are willing to make fixed rate loans. Also, area bankers say,
aggressive marketing is helping. Looking ahead to June, Third
District bankers expect C&I loan volume to remain flat, for the most
part. Consumer loan activity is expected to show some strength by
mid-1982, as local bankers plan to start emphasizing retail
borrowing should the rates continue to drop. Retail loans are
expected to grow by 2 to 3 percent by summer.
Reports of deposit flows in the Third District are mixed. Demand deposit levels are down as much as 14 1/2 percent from last year's figures. Local bankers say depositors are shifting their deposits to longer-term, high yielding time deposits which accounts, at least in part, for the lackluster performance in demand deposits over the last quarter. Reports of time and savings deposit levels run from 2 to 11 percent over December '80 levels.
Third District bankers are currently quoting a prime rate of 15 3/4 percent. Further cuts in the prime are expected to come soon, leaving the rate 100 to 375 basis points below its current level by mid-1982, when contacts expect the recession to bottom out.