November 30, 1988
A mid-November survey of business conditions in the Third District indicates continuing growth in most sectors. Manufacturing was posting its tenth month of expansion, with growth running at about the same pace as it has since spring. Retail sales were rising modestly, and a slight pickup in year-to-year gains first noted in October was continuing. Automobile sales in October and early November were up from the same period last year for domestic makes but down for imports. Business and personal lending continue to rise, although the pace of growth appeared to be easing in recent weeks.
The outlook in the Third District business continuity is for more growth, but with some reservations about the extent of further gains over the winter. Manufacturers see the current expansion continuing, but optimistic forecasts are not as prevalent as current reports of improvement. Nevertheless, capital spending plans are fairly strong, on balance, and firms scheduling additions to plant and equipment are looking to boost capacity by 5 to 20 percent over the next six months. Retailers forecast fiscal fourth quarter sales of about 3 percent above last year, in real terms, but express more than the usual amount of uncertainty about the outlook. Bankers see signs that growth in loan demand is slowing, but they say money market conditions could push lending rates up nevertheless.
Manufacturing
The region's manufacturing sector is still on an upward track,
according to the November Business Outlook Survey. Among firms
polled for the survey, 34 percent said business was picking up from
October while only 6 percent said business was off. Manufacturers of
nondurable goods reported somewhat better conditions than did
durable goods makers, but both sectors showed improvement month-to-
month.
Nearly all indicators of industrial activity were signaling growth in November. New orders and shipments were rising, order backlogs were edging up, and delivery times were being stretched somewhat as local manufacturers posted the tenth consecutive month of growth. Employment continued to gain as well. Twenty-four percent of the firms participating in the November survey were adding to payrolls while only 11 percent were cutting back.
Upward price pressure is still being reported. Among November survey respondents, 61 percent noted rising input costs and 32 percent indicated they were raising the prices of their own products. Looking ahead, 66 percent expect to pay higher prices for the goods they will buy over the next six months and 60 percent intend to charge more for the goods they make.
Area manufacturers see good business conditions lasting at least through the winter. Thirty-eight percent of the firms contacted in November expect more growth over the next six months while 17 percent see signs of a slowdown ahead. Overall, survey participants forecast increases in employment, new orders and shipments, although they anticipate an easing in order backlogs.
Local manufacturers' capital spending plans call for increases, on balance, for the next six months. Thirty-six percent of the November survey respondents intend to step up investment while only 13 percent will cut back. Planned increases, for both modernization and capacity expansion, are prevalent in the chemical, textile, and nonelectrical machinery industries. Some area firms in these industries have scheduled investment projects that will boost capacity in a range of 5-20 percent at certain plants over the next six months, although most describe the amount of the increase in their capital expenditures as modest.
Retail
Third District retailers report that sales were better than expected
in October and a good pace was being maintained in the first half of
November. Sales of women's apparel appear to be on the rebound after
a long period of weakness, but merchants say price increases are
coming that could dampen shoppers' enthusiasm. Store officials
indicate that inventories are in line with current and projected
sales, and they say that discounting, while widespread, is in
accordance with planned pricing strategies.
Area merchants are reluctant to predict the outcome of the Christmas shopping season because the competitive situation in the region is in flux, with major chains still working out their consolidation moves. Nevertheless, most retailers anticipate a satisfactory season, although expectations are that the year-to-year improvement in 1988 will be less than in the past few seasons. The consensus forecast is that fiscal fourth quarter (November-January) sales will be around 3 percent higher, in real terms, than the year-ago period.
Automobile dealers in the region report mixed results for October and early November. Domestic makes are selling above last year's pace but imported cars are selling below the rate of a year ago. Dealers expect sales to be good through the end of the year, after accounting for the usual winter slowness. However, dealer inventories have inched up lately and there could be a step-up in manufacturers' rebates and dealer discounts to boost sales in December.
Finance
Third District bankers contacted in mid-November described loan
growth as good, but easing in recent weeks. Total loan volume at
major Third District banks grew at an annual rate of 12 percent in
October, but bankers say most categories of lending have been
growing somewhat more slowly since. Commercial and industrial
lending in October was up 18 percent from the year-ago period at
major banks but growth appeared to be declining in November. Lending
officers say requests for commercial credit are continuing at a high
rate, but the average credit quality of business loan applicants has
fallen below standards, and growth in loans booked is slackening as
a result. Real estate lending, while still expanding strongly,
continues on its year-long trend of slowing growth. The rate of
increase in consumer loan volume eased somewhat in October, but
bankers said recent promotional efforts were reviving the pace of
growth.
While deposits at major banks have been growing at a fairly steady 6 percent annual rate since mid-year, bankers interviewed in mid-November said their costs of funds have been rising. According to some, current money market conditions make increases in bank lending rates likely.