Beige Book Report: Philadelphia
June 24, 1986
Summary
Economic conditions in the Third District are generally stable, with
indications of improvement in some sectors. In manufacturing, the
majority of the companies participating in the June Business Outlook
Survey report steady business for the second consecutive month.
Retailers say that sales have picked up in May and June following a
slower than anticipated April. Automobile sales, however, continue
to be weak. Bankers report a recent upturn in commercial loan
demand, but say that consumer lending is only growing moderately.
Looking ahead, the Third District business community is generally optimistic. More than half of the industrial firms covered by the June Business Outlook Survey expect better business conditions in the six months ahead, although they anticipate some weakening in the employment situation. Retailers believe the current healthy pace of sales will continue through the rest of the year. Automobile dealers, however, do not expect better sales any time soon. Lending officers at Third District banks predict that further strengthening of the regional economy will keep commercial loan demand high, while consumer lending is expected to grow at a relatively slower rate.
Manufacturing
Industrial activity in the Third District is running at a steady
pace according to the latest Business Outlook Survey. Fifty-nine
percent of the area manufacturers responding to the June survey say
business is unchanged from May, 17 percent note improvement, and 20
percent report slower business. Conditions in the nondurable goods
sector appear to be somewhat better than they are in the durable
goods sector.
Specific indicators of manufacturing activity show little change on the whole. New orders and shipments are up slightly, while order backlogs are off somewhat. Prices of industrial goods in the region are steady. Employment is down marginally; although two-thirds of the industrial firms polled in June report steady employment levels, 20 percent are reducing payrolls, while just 13 percent are adding workers.
Third District manufacturers are optimistic about the balance of 1986. More than half of the June survey respondents expect a pickup in business over the next six months, while only 16 percent anticipate weakening conditions. On balance, gains are forecast for new orders and shipments, while unfilled orders are expected to remain at current levels. Capital spending plans call for slight increases in the second half of the year. Local manufacturers do not predict improvement in employment, however.
Retail
Third District retailers report a pickup in sales after a slower
than expected April. In late May and early June, general merchandise
and department stores sales were 5-10 percent above the same period
last year. Store officials say seasonal items are selling well, and
that sales in all product lines are meeting expectations. Consumer
response to promotions has been very good. The one drag on the
retail sector is automobile sales, which have been disappointing for
the past few months.
Third District retailers, with the exception of automobile dealers, are optimistic about the second half of the year. With a healthy regional economy, they expect sales in the June-December period to be nearly 10 percent greater than in the second half of last year.
Finance
Lending officers at major Third District banks say demand for
commercial and industrial loans is rising and they expect
outstanding volume at the end of the second quarter to be
significantly higher than it was at the end of the first quarter.
They attribute this growth to accelerating business activity in the
region, and expect it to last through the rest of the year. Real
estate and construction lending is also up strongly. Several banks
report commercial construction loan volume in early June more than
50 percent above June 1985. Most of this financing is for office
buildings nearing completion, however, rather than for new projects.
Consumer lending in the Third District is also moving up as the second quarter comes to a close, although at a significantly slower pace than early in the year. Bankers say they believe consumers are becoming more sensitive to interest rates, and that the recent growth is due largely to the promotion of low rate (9-10 percent) personal loans. Credit card balances are growing slowly, and for some banks are virtually flat. Bankers do not expect more than moderate growth in overall consumer lending in the second half of this year.