March 15, 1988
Overview
District economic activity expanded in February, although
homebuilding and housing sales were unchanged, and retail sales
declined. Manufacturers reported strong growth, and they are
optimistic about growth prospects in the next six months. District
retailers, too, are optimistic about growth prospects in the next
six months, despite sluggish sales in recent weeks. Financial
institutions report higher loan demand in all major categories, and
bankers share the optimism of retailers and producers. Agriculture
is reported to be in generally better condition than a year ago.
Consumer Spending
Thirty-eight percent of the District retailers responding to our
regular mail survey reported declines in sales in February, while 30
percent reported increases. Many respondents indicated that they had
increased discounting and promotions since the beginning of the
year. Although the majority of the respondents indicated no change
in inventories, 32 percent reported increases. Two-thirds of the
retailers expect increases in sales in the next six months, compared
to 14 percent who expect declines.
Reports from department stores generally indicated weaker activity than in the retail sector as a whole. Half of the department store respondents said sales declined during February, while 25 percent said sales had increased. Nearly 70 percent experienced declines in sales of big ticket items. Department stores also reported slight declines in employment and little change in inventories.
Manufacturing and Mining
District manufacturing activity increased in February compared to
its pace in January. Forty-six percent of the respondents to our
survey reported higher shipments in February, up from 34 percent who
reported increases in January. Reports of reduced shipments remained
at only about 15 percent. Increases were also reported in new
orders, backlogs of orders, employment, and the length of the
workweek. About half of our respondents reported that inventories of
finished goods and raw materials were unchanged from a month
earlier, while about one-third reported increases.
The prices of raw materials and finished products rose further, according to District manufacturers. One-third said they had raised their product prices, and 64 percent said the prices they paid for raw materials had risen. Almost none reported price reductions. In addition, two-thirds of our survey respondents who use imported materials noted price increases in these inputs since the beginning of the year.
Manufacturers expert their activity to continue to rise in the next six months. About 48 percent of the respondents believe their shipments and new orders will rise—a proportion almost equal to the high recorded in the early fall of 1987—while about 14 percent expect orders to decline. One-third expect the lower dollar to boost their sales this year. Thirty-nine percent plan to increase their capital expenditures in the next six months—the highest percentage reporting such expansion plans since last August.
Coal production in the District during the first three weeks of February was slightly above production during the same period last year. Although the United Mine Workers contract expired on January 31, there were no reported work stoppages. Most union-affiliated coal companies in the District are operating under new contracts, although a few are still negotiating.
Housing
Half of the District realtors and builders surveyed by telephone
reported that home sales in February were unchanged from a year ago.
The remaining half was about evenly split between those reporting
increases and those reporting declines. Most of the activity in the
market was in homes priced above $150,000. In the Washington, D.C.,
area, however, condominiums priced near $100,000 were selling well.
In Baltimore, sales of new homes in the $80,000 to $100,000 range
have been depressed in recent months, although lower and higher
priced houses have been selling well.
Agriculture
Our contacts in the agriculture sector report that farmland prices
appear to be strengthening throughout the District, and that farmers
are generally optimistic about their income prospects. Tobacco
exports are expected to continue strong. Peach growers expect a good
crop as the winter weather has been cold enough to keep buds from
swelling and opening prematurely. However, poultry processors and
pork producers are in the down phase of their cycle, with lower
prices expected to persist. Subsoil moisture conditions are reported
to be good in Maryland and Virginia, but conditions have been dry in
parts of the Carolinas, prompting alerts of forest fire dangers.
Financial
Our telephone survey of District financial institutions indicated
slightly higher demand for commercial, consumer, and home mortgage
loans in February. Two-thirds of the respondents said they
anticipate increased demand for both consumer loans and loans
secured by real estate over the next six months. Bankers also
reported that prospects are good for commercial and industrial loans
in the months ahead. Respondents attribute their optimism to lower
interest rates and to their belief that rates will not rise.