January 30, 1985
Overview
There appears to have been a lull in industrial activity in the
District over the past month, although employment levels remain
firm. The District economy seems fundamentally strong. Retail sales
turned in a strong showing, better, by all indications, than
national data suggest. Construction activity is also quite strong,
but unusually good weather may be a factor in that sector. Yet,
manufacturers seem to have experienced a dip in orders and
shipments, and inventories also declined over the past month. Heavy
discounting by retailers gave a significant boost to unit sales, and
left their inventories relatively low as well.
Manufacturing
Activity in the manufacturing sector is clearly less robust than in
recent months. The deterioration of the activity in the textile and
apparel sector is continuing, although the pace may have slowed
somewhat. Import competition continues to plague the industry and is
of major concern to industry participants and observers. Other
industries have not recently offset the weakness in the textile and
apparel industries as they had in the last few months, however, and
orders, shipments, and order backlogs dipped broadly around year
end. Manufacturers also report weakness in prices.
Whether because of the recent decline in business activity or for other reasons, attitudes and expectations among District manufacturers also seem to have deteriorated of late. There is spreading concern over inventory levels and over excess plant and equipment capacity, although there is virtually no sentiment for changing current expansion plans. The outlook is also somewhat weaker than in recent months. Although manufacturers, on balance, seem to expect little change in output at their own firms, there is a slight preponderance of sentiment favoring declining activity at the national and market levels over the next six months. Despite these losses in activity and changes in attitudes, however, employment seems to be making further gains, at least apart from the textile and apparel industries.
Coal production bounced back shortly before year end, and currently seems to be holding near the very strong year earlier levels. Also, coal shipments and imports generally are still keeping the District ports and other transportation sectors quite busy.
Consumer Activity
Retail sales also finished the year on a strong note as consumers
responded aggressively to sales promotions and discounting. Month to
month gains of eight to ten percent were not uncommon in the
District. This surge of selling drew inventories down below normal
levels at many stores, but there does not seem to be any sense of
urgency about rebuilding stocks. Many retailers apparently are
relieved that inventories are down so far, and are inclined to wait
further developments before making restocking decisions. While there
is no clear indication of current pricing policies in the retail
sector, there are some signs that dealers are attempting to rescind
the discounts offered earlier.
Construction
The construction sector remains a high point in Fifth District
activity. Commercial and industrial building, still strong in the
larger metropolitan areas, is spreading to the smaller cities in the
form of office and industrial parks. Industrial building seems to
have picked up recently, and planned construction, particularly for
plant expansions, appears even stronger, despite the flagging
optimism noted in the manufacturing sector. Residential sales and
construction are also said to have rebounded, although even at the
recent trough, activity was substantial. In addition, early readings
on building permits suggest continued strength in residential
construction into spring.
Agriculture
Agricultural economic conditions in the Fifth District will likely
remain weak into 1985. Although District farmers will probably
continue to fare better than their counterparts in many other
regions of the U.S., the projected tighter U.S. net farm income and
cash flow levels seen for 1985 are expected to adversely affect
financial conditions in agriculture in the Fifth District. An income
downturn for farmers this year will reduce the growth of farm loans,
and hamper the serviceability of existing debt.
Agricultural bankers continue to be wary of farm foreclosures as they perceive the market for farmland to be extremely thin. As a result, bankers are generally favoring restructuring of farm debt whenever it appears to be a realistic solution to the cash flow problem facing farmers.
Expectations
The recent fading of the optimism previously seen around the
District appears to be related to uncertainty concerning such things
as the trade deficit, the budget deficit, and the tax reform
proposals rather than to current District business conditions.
Business decisions concerning plant expansions, employment, and so
forth continue to point to stable improved levels of activity. The
exception, of course, concerns inventories, particularly at the
retail level.