May 12, 1982
Overview
Fifth District economic and business activity continues almost
uniformly weak. There is virtually no evidence that conditions have
begun to improve. District manufacturers report further declines in
shipments and new orders over the past month. In addition, order
backlogs, inventories, and employment are said to have fallen
broadly. Retail sales activity has been essentially flat in recent
weeks and remains moderately weak. Housing activity is pervasively
weak. Business lending, as well as mortgage activity, is said to be
generally soft, nil in some areas. Consumer lending is somewhat
stronger. Most of the manufacturers surveyed expect business
conditions to improve over the next two quarters. Few Richmond
directors, however, expect the recession to end before fall.
The Manufacturing Sector
District manufacturers report further declines in shipments, new
orders, and order backlogs since the last survey period. Materials
inventories also fell while stocks of finished goods were stable.
Employment and the length of the average workweek were also said to
be down sharply. Reductions in manufacturing employment have spread
across the District and along with the construction sector have
resulted in unemployment rates above the national in some Fifth
District states. In some cases current rates were topped only in
1975. Construction and automobile related industries are among the
most severely affected. Layoffs and plant closings in such
industries as textiles, tires, furniture, glass, building materials,
and others have contributed significantly.
Despite the decline in inventories, manufacturers still view stocks as excessive and nearly half our respondents find current plant and equipment exceeding present needs. The survey further suggests that prices, including wages, have fallen, on balance, in recent weeks. Furthermore, respondents are considerably more optimistic than in recent months. Over half the manufacturers expect the level of business activity nationally, as well as in their respective markets and firms, to improve over the next six months.
Consumer Spending
Retail sales also remain generally soft. There are few signs of any
pickup in activity and little expectation that any will develop over
the next few months. Responses from our directors and our survey of
retailers suggest that some recovery in housing is essential to a
general recovery in the consumption sector. Our contacts in the
financial sector indicate that although installment lending has
shown some signs of life, consumers generally are paying down debt
and increasing savings.
Housing and Construction
Housing remains uniformly weak and other construction sectors seem
to have lost some of the buoyancy of recent months. There remains
little optimism concerning the short term prospects in this sector.
Richmond directors, for instance, do not now expect stronger new
housing activity any time this year.
Agriculture
Farm credit conditions in the District generally remain depressed.
Foreclosures on farm borrowers at the end of 1981 were reported by
more than one-fifth of our banker respondents. The number of
foreclosures represented a relatively small share of all farm
borrowers at the respective banks, however. In general, requests for
refinancing farm loans to avoid default were greater than usual.
Credit conditions during the quarter ending March 31, 1982 were characterized by soft farm loan demand, further deterioration in the quality of farm loans, and a modest rise in interest rates. Bank funds available for lending to farmers remained at a high level—up from both the previous quarter and a year ago—but collateral requirements jumped sharply. Loan-to-deposit ratios of banks reporting averaged slightly higher than in the previous quarter but were still fractionally below a year ago.
The Outlook
The outlook can only be described as mixed. Manufacturers have
become more and more optimistic in recent months. As noted, most
expect conditions to have improved by late fall. Retailers on the
other hand, do not seem to feel that any recovery is imminent.
Richmond directors clearly believe that any recovery is still
several months away, probably not before fall.