August 5, 1992
Business conditions in the Third District in late July appeared mixed. While manufacturers continued to report growth, other sectors were sluggish. Reports from area manufacturers indicated that orders and shipments were on the rise although unfilled orders and employment were just steady. Most retailers said sales were running just even with or below the pace set this spring as well as in early summer of last year. Sales of summer apparel, in particular, were well below plan. Some discount stores, however, were achieving relatively good year-over-year gains. Bankers generally described loan demand as weak. While some institutions reported growth in home equity and consumer lending, on balance loan volume is virtually flat at major banks in the district.
The outlook in the Third District business community reflects current trends. Manufacturers forecast continued gains in orders and output but they do not expect order backlogs to mount. Retailers anticipate some improvement in the fall, but many do not expect a healthy sales pace to take hold until next spring. Bankers generally do not anticipate an increase in loan demand soon. They say both business firms and consumers appear reluctant to incur more debt and are unlikely to step up borrowing even when the pace of economic activity quickens.
Manufacturing
Manufacturing activity in the Third District continued to move up in
July, on net; nearly one-third of the industrial firms contacted
reported improved business, and nearly two-thirds said business was
steady. On balance, manufacturers indicated that new orders and
shipments were rising. Order backlogs appeared to be unchanged
overall, and inventories were up marginally. Producers of nondurable
goods generally gave better reports than did makers of durable
goods. In particular, metals producers and nonelectrical-machinery
makers noted some recent slippage in shipments and orders. On
balance, manufacturing employment was unchanged.
A majority of the manufacturers contacted for this report expect business to continue to improve over the next six months. They look for increases in orders to be matched by increases in shipments, leaving order backlogs virtually steady. Firms with plans to step up hiring and capital spending outnumber those that anticipate cutting back employment or capital expenditures.
Industrial prices remain generally stable, according to area manufacturers. Despite the current increase in business, three- fourths of the plant managers surveyed said that both input and output prices have been steady recently, and they expect price stability to persist into next year at the least.
Retail
Third District retailers gave mixed reports in July. Most of those
contacted for this report said sales were running just even with or
below the rate achieved in the spring months of this year and in
July of last year. Auto dealers indicated that the sales rate in
July slipped from June but remained above the year-ago pace. Some
specialty stores and discount stores were faring better than the
overall trend. In general, however, there were more reports of
softness than strength. Sales of summer apparel were generally
running below plan, and some merchants said their inventories of
these goods were above desired levels. Merchants noted heightened
competition as they have undertaken more promotions to maintain
planned sales levels.
Several store executives believe that sales will be weak for the year as a whole and that it will be difficult to maintain profitability. While many Third District merchants are looking to the fall for the first signs that consumer spending will begin trending up, some believe that a healthy sales pace will not be restored until 1993.
Finance Third District bankers contacted in late July generally said loan demand was weak. A few indicated that consumer loans and home equity loans were up at their institutions, but total lending was flat. The most recent drop in mortgage rates has prompted an increase in mortgage applications, much of it for refinancing, but bankers said the volume of applications has not been as great as it was when rates fell at the beginning of the year.
Commercial bank loan officers do not foresee an increase in loan demand soon. Several said that both business firms and consumers appear reluctant to take on new debt. Some bankers also believe that loan demand will not rise strongly even when economic activity accelerates; they say businesses will be able to increase output significantly without having to borrow to expand capacity, and consumers will use growing incomes to improve their household balance sheets.