January 28, 1987
Overview
Manufacturing has resumed its rise after leveling off late last year
from an upward trend that began in midsummer. Producers are even
more optimistic than a few weeks ago about prospects for their
businesses in the months ahead. Coal production has increased in
recent weeks and further increases are expected as the year
progresses. In retailing, sales were weak in early January, but
inventories are at desired levels, prices are mostly unchanged, and
revenues are expected to rise again soon. In the District economy as
a whole, somewhat slower growth is expected in 1987. The region's
farmers, however, should enjoy a significant increase in income.
Consumer Spending
Retail sales activity was weak in early January, according to our
survey. Fifty-six percent of the respondents report seasonally
adjusted declines in sales and employment. Retail inventories appear
to he in line with expectations; retailers are optimistic that
business will improve in the coming months and they are restocking
accordingly.
Seventy percent of responding retailers report no change in the prices of the goods they sell or in the cost of goods they buy. Among the remaining 30 percent, those reporting price increases outnumber those reporting declines.
Manufacturing and Mining
Our survey indicates an increase in the seasonally adjusted pace of
manufacturing activity in early January as compared with December.
Thirty-seven percent of the respondents report January-over-December
increases in shipments and 24 percent report declines. In our
previous survey, 29 percent reported November-over-October increases
in shipments and 27 percent reported declines. Manufacturing
employment appears to be up slightly in January; only six percent of
the respondents report fewer employees, 77 percent indicate no
change, and 17 percent report more workers on the job. Nondurable
goods industries continue to show greater strength than durable
goods industries, although furniture industry representatives report
further increases in activity.
The manufacturing outlook also appears to be improving. Among, respondents, 35 percent report increases in new orders and 25 percent report declines. In the previous survey, increases were reported by 25 percent, declines by 26 percent. Unfilled orders also appear to be rising.
Looking ahead, manufacturers continue to anticipate increases in shipments and new orders. In our latest survey, about two-thirds indicate that they expect increases in these categories, compared with about half in the previous survey. Fifty-nine percent of the respondents believe general business conditions in the nation will be better six months from now; this percentage rose in January after declining in each of the three previous surveys.
Manufacturers' inventories of finished goods were apparently rising in early January, a change of direction from the four previous surveys. Higher inventory levels in January as compared with December are reported by 30 percent of the respondents; 20 percent report lower levels. In the previous survey, 26 percent had reported higher levels, and 43 percent had reported lower levels. Manufacturers' inventories of materials, however, appear to have declined for the fifth consecutive survey.
Regional coal production was slightly higher in mid-December then a year ago. Coal producers are cautiously optimistic about their sales in 1987 because they are less worried about the impact of possible acid rain legislation on demand, they expect buyers to stockpile coal this year because of the threat of a strike early in 1988, and they expect to compete better with foreign coal suppliers. Increased coal production will probably not result in more jobs for coal miners, however, because of advanced mining technology.
Agriculture
A survey of agricultural specialists indicates farmers in this
region should face brighter income prospects in 1987. Crop producers
will probably be selling their harvests at low prices, but their
production should be up substantially over the drought-reduced
levels of 1986. Livestock producers will likely benefit from the low
grain prices. Poultry production, a large part of the region's
livestock sector, stands to benefit the most because the costs of
producing poultry are especially sensitive to grain prices.
District Outlook and State and Local Government Purchases
A combination of forecasts from economists who project activity in
their home states yields a forecast for moderate growth in 1987 in
the District as a whole.
Regional forecasters are about evenly split between those who expect their state and local governments to increase real purchases significantly and those who expect little change in economic stimulus from their state and local governments.