Beige Book Report: Philadelphia
June 19, 1991
Reports from Third District business contacts in early June indicated that regional economic activity was essentially steady overall, although conditions varied by sector. Manufacturers generally noted continuing improvement, while retailers indicated business was only steady, and bankers reported continuing slackness in loan demand. On balance, industrial firms in the district were posting gains in shipments and orders in late May, and they were maintaining steady employment levels. Retailers gave mixed reports: discount stores were making year-over-year gains and seasonal merchandise was generally selling well, but total sales in May appeared to just match the May 1990 level, in dollar terms. Bankers said business and consumer loan volumes outstanding were slipping while residential mortgage lending was edging up.
Expectations among business contacts are generally positive although the level of optimism is not high overall. Manufacturers forecast a relatively solid improvement during the balance of the year and they are making plans to step up hiring and capital spending. Retailers, however, anticipate that real sales in the second half will be just even with the year-ago period. Bankers generally forecast a slow upturn in loan demand in the second half. They expect slight gains in consumer and residential lending, and, while they believe an increase in loans to business may be ahead, they do not foresee a rebound in commercial real estate lending.
Manufacturing
Reports from Third District manufacturers contacted in late May and
early June indicated that activity was picking up in most of the
major industries in the region. Although half of the firms queried
said shipments were running at just a steady pace, one-third noted
recent increases. One-third of the manufacturers polled also
reported that new orders have risen in recent weeks. Although demand
for their goods appeared to be growing, most of the industrial
companies in the region were not adding to payrolls or extending the
workweek.
Looking ahead, most Third District manufacturers providing information for this report expect business to continue to improve this year. On the whole, they foresee healthy gains in orders and shipments. Managers at area plants indicated they intend to act on their optimism; one-third plan to add to their work forces and nearly half will step up capital spending over the next two quarters.
Retail
Third District retailers generally described May and early June
sales as lackluster, although some said summer clothing and other
seasonal goods sold well during a period of unusually hot weather.
Overall, reports from store officials indicated that current dollar
sales in recent weeks were even with the same period a year ago.
Several discount and off-price stores, however, made year-over-year
gains.
Most of the merchants contacted for this report believe the sales trend over the summer will be flat in real terms. They are somewhat apprehensive about the fall, and several voiced concerns that consumers will not step up spending sharply even when the economy moves out of the current recession. They point to the possibility of growing restraint in consumer spending as a negative influence on retail sales growth in the future.
Auto dealers in the Third District reported that new car sales have been declining since March, both in unit and dollar terms. Some dealers said that potential buyers' reluctance to add significantly to debt loads while the economic outlook remains uncertain was depressing demand for new cars. In contrast, used car sales have been relatively healthy.
Finance
Third District bankers contacted in early June indicated that
lending activity was soft; most reported that loan demand was weak
in all credit categories. On the basis of these reports it appeared
that total loan volume outstanding was declining. Although
residential mortgage lending was expanding, albeit slowly, business
and consumer lending was declining. In particular, several bankers
noted that auto and credit card loan volumes outstanding were
falling at their institutions.
Most of the bankers who offered forecasts said they expect a slow economic recovery to start in the third or fourth quarter, setting the stage for an upturn in loan demand. However, most bankers expect only sluggish growth in lending when the recession ends. They believe consumers will not increase spending quickly and that residential real estate activity will not pickup appreciably from the current pace. As for business lending, the general opinion among Third District bankers is that commercial real estate lending will remain depressed through this year and next; and, although several bankers noted that their regular business borrowers are considering requesting additional credit, they said that loan applications have not increased yet.
Third District bank executives generally indicated that funding was adequate given the slackness in loan demand. Total deposits at banks in the district have been declining, according to bankers, as interest rates have eased. Money market deposit account balances have been steady, however, and bankers believe depositors are favoring these liquid accounts as rates on time deposits have fallen.