May 12, 1982
Summary
Retail sales have flattened but retailers are reluctant to
indicate the timing of recovery. Demand for capital goods continues
to decline. Demand for steel may have bottomed at a very low level.
Manufacturers expect inventories to decline again in May. Retail
inventories have become more burdensome. Unemployment is rising as
plant closings continue. Ohio farmers are in great financial
difficulty. Business loans and NOW accounts were flat in early May.
Consumer Spending
Retailers generally believe that declines in
sales have flattened but are reluctant to indicate the timing of
recovery. Several retailers report deferring or canceling plans to
build and open new outlets over the next few years because of high
interest rates and uncertain profit margins. One major retailer
places the trough in consumer spending in April. He points out that
declines in spending in March and April offset nearly one-half of
the increase in spending that occurred between last October and
February. Auto producers are not optimistic that sales will improve
much until well after the scheduled tax decreases in July.
Capital Goods
Capital goods producers continue to face declining
demand for their products. A manufacturer of machine tools,
continuing to experience lower orders and falling backlogs, is
"gearing operations down to the lower level of business anticipated
in 1983." Another machine tool manufacturer recently laid off
another 250 employees because of weak orders and declining backlogs.
A bearing manufacturer expects second quarter orders to be 8% below
first quarter, and backlogs to fall further. He anticipates some
upturn in demand from auto and farm machinery producers in the
second half but no recovery before yearend in demand from railroad
car and machine tool manufacturers. A major supplier of heavy-duty
truck equipment reports that sales continued to decline in April and
expects no recovery in heavy-duty trucks before yearend.
Steel
There are some indications that demand for steel may have
stopped declining. One major producer says orders have stabilized at
a very low level but expects industry shipments for the year may be
as low as 70 to 75 million tons. That firms notes that "low volume
and very weak prices are putting the steel industry under great
financial pressure. Marginal producers probably will not survive."
Another major producer, operating at 48% of capacity, says "the
order book is flat." The firm expects second quarter shipments to be
no better than in the first quarter, which had the lowest non-strike
level of shipments in 40 years.
Inventories
A sample of manufacturers report that their inventories
fell in April and will fall again in May. Most producers of primary
metals and industrial machinery expect to continue to cut
inventories. A producer of paint and a paper manufacturer expect to
add to inventories. A petroleum company expects crude oil
inventories to continue the decline that began in mid-February.
Petroleum product inventories dropped sharply in the first quarter
and should, on balance, decline slightly in second quarter. Bearing
inventories held by producers and customers fell in first quarter,
but little change is expected in the second quarter. Inventories of
heavy-duty trucks were reduced substantially in March but the
further decline in sales in April has deferred the completion of the
inventory liquidation. Automobile producers are no longer concerned
about new car inventories, except on a spot basis.
Retail inventories of department-store-type goods have become more burdensome because of declines in sales in March and April.
Unemployment and Plant Closings
The effects of recession continue
to spread and deepen throughout the Fourth District. The April SA
unemployment rate was 12.4% in Ohio and 10.7% in Pennsylvania, well
above the nation's 9.4%.
Plant closings continue in the District although some have been avoided or rescinded because of worker concessions. National Steel wants to sell or close its 11,500 employee steel plant In Weirton, West Virginia and Colt Industries wants to sell or close its 4,300 employee Crucible Steel Division plant in Midland, Pennsylvania. AM International wants to close or sell its 500 employee duplicating machine parts plant in Cleveland. B.F. Goodrich recently agreed to continue operating its 2,000 employee Akron industrial products plant for 3 years in exchange for union contract concessions. GMC is closing a 1,200 employee stamping plant in Cleveland but has rescinded the planned closing of a 1,400 employee trim plant in Cleveland in exchange for union concessions.
Agriculture
The widespread nature of the recession is illustrated
by the increasing plight of farmers, especially those in southwest
Ohio. Many are finding it hard to obtain credit. The Ohio Department
of Agriculture expects four times the usual number of Ohio farmer
bankruptcies this year and expects nearly one-fourth of the state's
farm machinery dealers to close or be sold. The Department also
notes that a number of grain elevator operations are in financial
difficulty.
Financial Institutions
Business loans and NOW accounts were flat in
early May, and one banker reported more switching of deposits out of
S&L's. Two major banks report C and I loans declined during the last
two weeks of April, were flat in the first few days of May, and are
expected to be flat for the month. Another large bank reports that C
and I loans have remained strong in recent weeks but a definite
slowing in commitments will show up in reduced loans in the months
ahead. Some bankers characterize much C and I activity as "distress
borrowing" and "not for expansion but just to pay bills".
NOW accounts at two large commercial banks declined in the last two weeks of April and were flat or down a bit in the first week of May. One banker reports that the silent run on S&L's has been augmented in the last month by frequent instances of early withdrawal of small CD's by depositors who accept the penalty and shift funds to sometimes lower yielding certificates in commercial banks.