September 23, 1992
Economic activity in the Third District appeared to edge up slightly in August and early September, according to reports from area businesses. Manufacturers noted continued gains, on balance, with increases in orders and shipments. Retailers generally indicated that sales picked up in late August and early September from the summer pace although the year-over-year increase was slight. Bankers said loan volume outstanding has been virtually steady in recent weeks, with business lending flat, and gains in residential mortgage lending offset by declines in consumer installment lending. Realtors indicated that home sales continued to exceed last year's rate, but demand for office space remained weak.
Looking ahead, Third District business contacts expect little change from current trends. Manufacturers expect orders and shipments to continue to rise. Retailers forecast a seasonal increase in sales for the fall but only a small year-over-year gain. Bankers generally expect little or no growth in overall lending in the months immediately ahead.
Manufacturing
Manufacturing activity in the Third District continued on the rise
in late August and early September, according to industrial firms
contacted for this report. While a little more than half of the
companies indicated their business was steady, just over one-fourth
said they had stepped up activity in recent weeks. Activity appeared
to be steady or rising in nearly all major industries in the Third
District with the exception of transportation equipment where orders
and shipments were reported to be falling. Overall, however, area
manufacturers indicated that shipments and new orders were moving up
although order backlogs were declining. Employment appeared to be
steady as most firms were maintaining constant payrolls, and
cutbacks at some plants were being offset by increase at others.
Looking ahead, a majority of Third District manufacturers expect business to remain on an upward trend through the coming winter. On balance, they plan to step up shipments and they anticipate an increase in orders that will boost backlogs. Employment increases are planned by approximately one-third of the firms contacted while half intend to maintain current payrolls.
Retail
Third District retailers generally indicated that sales picked up in
recent weeks for the back-to-school shopping period, although year-
over-year gains appeared to be slight; results varied among stores,
and reported increases were 5 percent or less, in dollar terms.
Merchants continued to cite lackluster economic conditions as a
retraining influence on consumer spending.
In general, Third District retail executives expect sales to move up seasonally through the fall, but they anticipate only a modest increase for the period compared to last year. While several merchants said they planned expanded advertising and promotional campaigns for the balance of the year, they do not appear to be boosting sales plans. Most said they will attempt to keep inventories lean.
Finance
Total loan volume outstanding at major Third District banks was
described as stable by bankers contacted in early September. Most
banks gave similar reports indicating that commercial and industrial
lending was flat, consumer installment loans were edging down, and
residential real estate loan volumes were continuing to rise.
Bankers noted increases in mortgage lending for new purchases as
well as refinancings and home equity loans. Several bankers said
their institutions were actively seeking new business borrowers but
finding loan demand weak.
Area bankers anticipate little growth in lending ahead. Some speculate that consolidations and restructurings by business firms are resulting in fundamental reductions in their credit needs and that a significant increase in business borrowing will not occur until a trend of strong economic growth is well under way. Consumer loan demand will pick up, according to bankers, with a resumption of growth in employment and income.
Real Estate
Residential realtors reported that home sales during the summer were
slightly above sales in the year-ago period, and the pace seemed to
be continuing. However, they noted that there are a large number of
homes on the market, keeping prices in check. There are few reports
of price appreciation, and realtors indicated that there is a great
deal of variation in trends from place to place, with prices firm in
some areas and falling in others. In particular, real estate agents
said prices are dropping for very expensive homes and for homes in
some resort areas. Realtors said that both existing and new homes
are selling at a better pace than they did last year, although it
was noted that some builders who announced price increases in the
past few months have seen traffic fall off at their developments.
Demand for office space remains weak, according to commercial realtors. They estimate that vacancy rates this summer reached about 16 percent in central Philadelphia and varied from 13 to 27 percent in suburban areas. Realtors said ongoing consolidation by local companies is continuing to reduce demand for office space. Older buildings are especially vulnerable to declining demand, according to realtors; they estimate that the vacancy rate in Class B buildings is about 22 percent and that rents are being reduced from 10 to 40 percent depending on the age and condition of the building.