Beige Book Report: Philadelphia
May 1, 1991
Indications of economic activity in the Third District in mid-April were mixed, but suggest conditions overall may be stabilizing. The two-year downtrend in manufacturing showed signs of leveling off as a majority of industrial firms contacted in April reported steady business compared to March. Retailers noted some softening in sales in recent weeks, following a pickup in March. In general, however, store officials indicated that sales in dollar terms for the first four months of this year will be even with the same period in 1990 for stores open at least a year. Bankers described overall lending as flat. Although there was a pickup in consumer and mortgage lending in March, new lending appeared to be easing in April.
The outlook in the Third District business community is beginning to brighten although expectations are not strongly optimistic. Manufacturers are generally positive: more than half of those contacted for this report expect business to expand over the next six months. Retailers anticipate sales in the second quarter will be flat compared to the year-ago period, but they expect some improvement in the second half. Bankers foresee a modest economic recovery that will boost lending slightly as the year progresses.
Manufacturing
The Third District manufacturing sector appeared to be stabilizing
in April. A majority of firms contacted for this report indicated
that they were operating at a steady rate compared to the prior
month while the number reporting slower business was offset by those
posting gains. This is the first indication that industrial activity
might be leveling off since area firms began reporting a general
downturn two years ago. On balance, manufacturers noted increases in
shipments and a pickup in orders in recent weeks. However, the
rebound in demand does not appear to be pressing current
manufacturing capacity in the region; overall, managers at area
plants said order backlogs were still shrinking and inventories were
holding steady. Area firms also reported that they were continuing
to trim both the number of workers and the length of the workweek.
The outlook among Third District manufacturers is generally positive. More than half of those queried said they expect business to expand over the next six months while less than one-in-five anticipate further weakness. A majority predict increases in both orders and shipments between now and October, and a third plan to boost employment over that period. On balance, area firms are planning increased outlays for plant and equipment in the next six months.
Retail
Third District retailers contacted in mid-April generally said sales
had been slipping in recent weeks. A pickup in March offset a
lackluster February, according to merchants, but the gain was not
carrying through into April. This pattern was being reported at most
types of stores and for most lines of goods. Overall, merchants
indicated that results for the first four months of this year will
run just even with the year-ago period, on a current dollar, same
stores basis.
Looking ahead, retail executives generally expect little or no improvement in the second quarter. They believe sales in the second half of this year will be greater than they were in the second half of 1990, which was weak, but they do not foresee strong gains. Several retailers noted that store traffic was running below expectations, and they believe shoppers will remain cautious until the employment situation improves.
Finance
Commercial bankers contacted in mid-April indicated that overall
loan volume was essentially flat compared to the prior month. Most
of those surveyed said commercial and industrial loan demand was
weak and most types of consumer lending were also soft. An exception
was revolving home equity loans, which had picked up in response to
somewhat lower rates and bank promotions; however, bankers indicated
that this increase was beginning to wane. Some bankers also said
residential mortgage activity for both home acquisitions and
refinancings picked up in March but had slowed since.
Commercial bank lending officers said lending will grow as an economic recovery gets under way, but they do not expect the rebound to be strong. A slow expansion of business activity will restrain growth in all categories of lending, according to bankers. In particular, they predict that consumer and residential real estate lending will not pick up vigorously until employment starts to trend up.