June 25, 1984
Overview
Once again, most available evidence points to continued economic
expansion in the Fifth District. Recent strength appears to be
concentrated in trade, services, and construction, however, and
seems to be largely seasonal. New order growth in the manufacturing
sector has clearly slowed in recent weeks, although some firms and
industries are still showing significant gains. Also, momentum from
order backlogs and inventory accumulation is still supporting
production levels. Activity in the housing sector, despite some
month to month fluctuations, appears to be holding to the robust
trend established earlier in the recovery. Nonresidential
construction is also lending continued support in the District. In
addition, growth of loan demand in both the business and consumer
sectors is quite strong, and is generally expected to remain so. By
and large, there are no major factors that seem likely to put upward
pressure on costs in major District industries over the remainder of
the year.
Manufacturing
Despite some slowing of new order growth in recent weeks, District
manufacturers, on balance, appear to have continued expanding
output. Shipments have continued to grow as order backlogs have
become abnormally large in some industries. Also, there continues to
be some emphasis on inventory building, although most intentional
accumulation has probably already taken place.
Some of the District's major industries are facing significant competition from foreign producers and are losing ground in both domestic and world markets. Among manufacturing industries, textiles and apparel and furniture are prime examples. Both industries have expanded output substantially over the past year, but have lost ground to imports in domestic markets. Coal is the major example in the nonmanufacturing area, having raised output significantly in 1984, but with little or no gain in exports, which fell sharply in 1983. It seems likely that both output and prices in these industries will be constrained throughout 1984 as a result of foreign competition.
Consumer Spending
Consumer spending activity is still quite strong, although big
ticket items do not seem to have contributed their share in recent
weeks. Sales of general merchandise and services are carrying the
load for the time being. The apparent lull in durables is generally
thought to be transitory. Consumer balance sheets are perceived as
being in good order and consumers seem no less willing to take on
additional debt despite the recent rise in outstandings and interest
rates.
Housing and Construction
Housing and construction are still bright spots in the District
economic picture in spite of some sizeable month to month
fluctuations in residential sales and construction activity. The
trend in housing construction around the District looks quite
strong, and sales of new homes are sufficient to keep it that way.
Speculative building of homes offers further support to the
industry. Unsold units, new or otherwise, seem to be well under
control in most areas, although larger numbers are coming to market.
Banking and Finance
Loan demand has grown quite rapidly in recent months and has
generally outstripped deposit growth at District financial
institutions. Nonetheless, most institutions seem to feel able to
expand loans somewhat more relative to deposits, and many are
convinced they will have ample opportunity to do so. They are
projecting loan growth in excess of deposit growth, with
considerable strength coming from both business and consumer
sectors.
There is little feeling around the District that current debt levels represent an impediment to further consumer borrowing. In addition, there is no apparent consensus regarding how recent interest rate increases will affect the pattern of consumer credit activity in coming months.
The Outlook and Prices
More and more, respondents around the Fifth District seem to feel
that the economic expansion has nearly run its course. There is
little support, however, for the view that any sort of contraction
is imminent. For the most part, our respondents are expecting only a
leveling off of business activity.
There do not seem to be major sources of cost or price pressures emerging in District industries. Of course, the coal industry is currently involved in negotiating a new contract, and the recent strength in domestic markets might raise the miners' expectations. Also, major collective bargaining contracts in the apparel industry expire next year. However, in these cases, as well as in the textile industry, foreign competition is likely to impose some restraint, particularly in the case of continued strength of the dollar.