May 6, 1992
Economic conditions in the Third District during April appeared to be just steady overall, although there were some signs of improvement. Positive indications came from manufacturers, who generally noted a second consecutive month of growth in both shipments and orders, and realtors, who reported that home sales were picking up and prices were firming. A weaker situation appeared to prevail in retailing; most Third District merchants contacted for this report experienced a drop in sales in March and April compared to January and February. In the financial sector, bankers generally described total loan volume as flat.
The outlook in the Third District business community is generally positive, albeit restrained. Manufacturers expect continued improvement and they are planning modest increases in hiring and capital spending. Retailers hope for a rebound in the second half of the year, but they expect only slow growth once a recovery in sales gets underway. Bankers forecast moderate gains in lending in the second half, primarily to businesses as capital spending is stepped up. Realtors anticipate sustained improvement in residential markets provided mortgage rates do not continue to rise, but they expect commercial markets to remain weak for some time to come.
Manufacturing
On the basis of reports from industrial companies in the Third
District it appeared that manufacturing activity was picking up in
April. More than a third of the firms contacted for this report said
their business was improving and nearly half said business was
steady. Companies in nearly all major manufacturing sectors in the
district noted improvements in orders and shipments; the exceptions
were food processors and makers of rubber and plastic products who
noted declines. Overall, Third District manufacturers were
maintaining steady employment.
Nearly two-thirds of the manufacturers polled for this report predict continued improvement over the next six months. On balance, they forecast gains in shipments and new orders; they also expect order backlogs, which have been stable, to increase. While approximately half of the firms queried said they would hold employment and capital spending level over the next two quarters, more than one-third plan to add workers and more than one-fourth are scheduling increased capital expenditures during the period.
Retail
Most Third District retailers indicated that sales in March and
April ran below the pace of January and February. Several also said
that sales were off compared to March and April of last year.
Retailers said sales of furniture, home furnishings, and other hard-
goods were running closer to expectations than were sales of soft
goods. Apparel, in particular, was described as weak; and merchants
attributed this partly to a late Easter and unseasonably cold
weather, and partly to the lack of a clear fashion trend in women's
wear.
The consensus forecast among Third District retailers is that recovery will be slow and erratic. While some look for the beginning of an upturn in the third quarter, others believe solid improvement will not take hold until next year. In the meantime, store executives indicated they will be focusing their attention on cost- cutting, including employment reductions.
Auto dealers also experienced a sales slowdown in March and April. On balance, they expect unit sales for this year as a whole to just match last year's results.
Finance
Reports from Third District bankers in late April indicated that
total loan volume outstanding at major banks had been essentially
flat in recent weeks, with gains in residential real estate lending
offset by declines in business and consumer loans. However, several
bankers said they expected residential loan growth to taper off as a
backlog of refinancing applications is worked down. Prospects for a
modest increase in commercial and industrial lending appeared to be
improving, according to bankers. Several mentioned that their
regular borrowers were considering expanded capital spending plans
for the near future, and several bankers indicated that their
institutions were or would be stepping up marketing efforts to
potential business borrowers.
Real Estate and Construction
Residential realtors contacted in April generally indicated that
home sales were running above the year-ago pace. Some said that the
pickup in sales began in March, largely for moderately priced new
homes, and that sales of existing homes and higher-priced houses
were increasing in early April. It was also noted that, compared to
last year, houses seemed to be selling more quickly after being
listed, and at their offering prices rather than at discounts.
Realtors generally were optimistic that the pace of sales would be
maintained for the rest of the year if mortgage rates do not
continue to rise.
Commercial and industrial real estate markets did not appear to be sharing the improving health noted in residential markets. Demand for industrial and retail space was described as particularly weak by brokers. Commercial brokers continued to describe the market for office space as soft although some noted that vacancy rates were declining in some areas.
Construction activity, overall, appeared to be flat. While some slight gains were indicated in residential and public construction, commercial building activity remained at a low level.