November 2, 1983
Indications from the Third District in October are that the regional is expanding. Local manufacturing conditions have improved again, and retail sales have pushed even higher. In the financial sector, loan volume has improved recently, but it remains mixed. In addition, a dip in mortgage rates has halted the decline in activity in the local housing market.
Third District contacts expect the expansion to continue over the next six months. More gains for area industry are expected and substantial consumer spending growth is projected. Loan activity is also likely to gain strength by April.
Real Estate And Construction
Activity in the Third District housing market has held fairly steady
since early September. Although sales are still better than a year
ago, they remain disappointingly below the pace set this past
spring. The steadying influence in current sales activity has been a
slight dip in mortgage rates, but brokers indicate that many buyers
are hesitant to commit now in anticipation of further declines in
rates in the near future. Traffic through new and older homes is
reported to be down, and, because of the earlier let up in sales,
new starts are very slow.
Manufacturing
Manufacturers responding to the October Business Outlook Survey
report that Third District industrial activity is entering the
fourth quarter of 1983 with much the same strength as shown in the
previous three quarters of the year. About 45 percent of
participating executives indicate that overall business conditions
have improved in October, and only a very small number of
respondents report any drop-off since September. New orders and
shipments continue to display widespread growth in October, and
employment gains remain solid. Many manufacturers say they have
added to factory payrolls or lengthened working hours since
September. Local producers do, however, report another marginal
decline in inventories this month.
Looking ahead, general manufacturing activity in the Third District is expected to continue to expand over the next six months, but, as in September, respondents' forecasts seem to predict a moderation of the recovery. Roughly two thirds of the businessmen polled forecast better conditions within six months; that is about the same as a month ago, but noticeably less than earlier in the year. Nevertheless, strong gains in new orders and shipments are likely to continue and some inventory growth is projected. Manufacturers are planning to bite more workers and to expand the average workweek, but their expenditures for plant and equipment are expected to remain relatively weak.
Industrial prices continue to reflect the rapid expansion of manufacturing activity. The prices of both inputs and final products have risen again in October, and further escalation is projected over the next six months. More than three quarters of the participating manufacturers foresee higher raw materials costs by next spring and one half expect to up their own products' prices over that time.
Retail
Department store sales in the Third District have expanded more
rapidly in the last six weeks than merchants had anticipated.
According to local retailers, buoyant consumer attitudes, very
favorable weather conditions and heavy promotional activity have
pushed year-over-year sales gains even higher, reaching the mid-teens at most area stores. Merchants say apparel, home furnishings
and personal computers are among the big movers in October. In spite
of such hefty sales growth at a low inflation rate, however, many
store owners report that profit margins have remained very slim.
They attribute the squeeze to the costs associated with heavy
reliance on promotional activity in generating current sales.
Because of the current surge in activity, local retailers have become less cautious about. business in the next six months. They are now forecasting gains of between 6 percent and 9 percent over healthy year-earlier levels for spring 1984. If, as expected, prices rise only slightly, substantial real gains for area merchants are likely.
The outlook for consumer spending is apparently robust enough to warrant further accumulation of retail inventories. Stocks of consumer goods, which have grown in recent weeks to levels about 10 percent higher than a year ago, are expected to swell even more by April.
Financial
Loan activity at Third District banks has been on the upswing in
October. Local bankers report that C&I loan demand is finally
showing some signs of breaking out of its slump. They indicate,
however, that further improvement in the cash flow of many area
businesses has again limited the growth of commercial demand. The
result is that, while slightly better than a month ago, business
loan volume, now ranging from 8 percent below to 20 percent above a
year ago, remains mixed. On the other hand, area banks are still
reaping the benefits of their expanded push in retail lending.
Lenders say that, with interest rates relatively steady and the
general economy improving rapidly, consumer credit demands have
responded very positively to new marketing efforts As a result,
retail loan volume in October is between 14 percent and 30 percent
ahead on a year-over-year basis, according to contacts.
Third District bankers are projecting even better business for the next six months. By April, more substantial gains in C&I lending are anticipated as businesses begin to look mote aid more toward external sources for new financing. Bankers also plan to keep the push on consumer loans and expect to see further growth by spring.
The prime rate at major banks in the Third District is unchanged at 11 percent in October. Financial contacts do not foresee any substantial pressures pushing rates either up or down in the next six months. They expect that Fed policy will counterbalance expanding private credit demands aid keep interest rates flat into early 1984. Contacts noted, however, that there is still a lot of uncertainty over the international debt situation, and that poses a threat to continued stability in rates.
Deposit flows have turned mixed in October, according to local bankers. Demand deposits have slipped below year-earlier levels for the first time in quite awhile, but time deposits remain strong. Although growth in the deregulated accounts has settled down, time and savings balances are now as much as 32 percent ahead of a year ago.