November 2, 1983
Overview
Economic expansion is continuing across a broad front in the Fifth
District. In the manufacturing sector shipments and new orders have
risen sharply in recent weeks, while employment and weekly hours
have almost kept pace. Inventories are reported to be unchanged and
are now nearly in line with desired levels. Retail sales also
strengthened in recent weeks as both big ticket items and non-
durables made significant gains. The consensus around the District
appears to be that housing activity has hit a plateau and should
hold near present levels, on balance, until spring. At the same
time, commercial and industrial construction is expected to pick up
slightly by year end. Expectations are also positive elsewhere, and
overwhelmingly so among manufacturers.
Manufacturing
Among District manufacturers, shipments and new orders were up
significantly from last month although order backlogs were down.
Inventories showed virtually no change, either at the finished goods
or materials level. Currently stocks are generally considered
appropriate. Manufacturing employment and, particularly, the average
work week, continued their month-to-month gains. There is still some
support for the view that current plant and equipment capacity is
inadequate and that existing expansion plans should be enlarged.
There continue to be only scattered reports of price increases. A
substantial majority of our contacts report stable prices, including
employee compensation in recent weeks.
Widespread optimism is still the prevailing attitude among District manufacturers. A large majority now foresee continued economic expansion nationally and in their respective localities and markets over the next two quarters. Almost none believes that activity will slow over that period.
Consumer Spending
Retailers also continue to report expanding activity in most areas
and product lines. Widespread gains in sales are getting roughly
proportional support from big ticket items. The brief slowing in
durable goods reported earlier in the fall is now attributed to
seasonal or supply conditions in the automobile sector where
activity is once more reported buoyant. Also, retail inventories are
continuing to accumulate rapidly, but without generating any
particular concern among retailers. The number and size of outlets
is also generally considered appropriate.
District retailers, while still optimistic, continue to trim their expectations. The most commonly held view at this time is that the level of activity will be little changed over the next six months, but no respondent expects the level to decline in that period.
Housing and Construction
Housing activity remains something of a mixed bag looking across
parts of the District. The evidence, however is that in most areas
this activity has regained the levels of mid-summer. In addition,
the most common expectation is that these levels of activity will be
sustained for sometime to come, at least apart from seasonal
influences. There is little sense that any problem, even
potentially, is posed by big current rates of accumulation of new,
unsold housing units. There is very little mention of mortgage rates
these days.
Commercial and industrial construction activity is still picking up somewhat, but new activity is hardly robust. Once again, however, expectations are generally positive. Most respondents foresee continued modest gains in C&I construction activity in coming months. It should be noted, though, that office space remains in excess in some metropolitan areas.
Banking and Finance
Financial institutions have apparently tried very hard to expand
loans recently. Several respondents have suggested. the overall
credit quality of their portfolios has declined as a result of their
having sought ever wider circles of borrowers. At least partly as a
result of these conditions in the loan markets, recent steps in the
deregulation of deposits appear to have had little effect on either
institutions or their customers. The most widely expected effect,
judging from comments from around the District, is a longer term
restructuring of financial institutions' liabilities. There is
almost no expectation, however, of any significant short term
changes.