Beige Book Report: Philadelphia
June 23, 1993
Reports from major sectors of the Third District economy in the first half of June were mixed, but indicated further slackening in growth in some areas. Manufacturers noted that while shipments were edging up, new orders were flat and order backlogs were declining. Employment in the manufacturing sector was easing also. Retailers generally reported a healthy sales pace for May, and said early June sales were good but a seasonal slowdown was developing. Auto dealers said car and truck sales were strong in April but car sales have eased since while truck sales have continued at a brisk pace. Bankers indicated that overall loan volumes in early June were flat, although some noted small gains in consumer lending and lending to small and mid-size businesses. Most continued to describe loan demand as soft, however.
Comments from Third District business contacts suggest that the outlook is still on the positive side but the level of optimism is declining. Manufacturers expect some improvement in orders and shipments, but no increase in order backlogs. Employment is forecast to drop over the next six months and capital spending plans, while still calling for increases, have been trimmed since earlier in the year. Retailers expect slow growth for the balance of the year and auto dealers expect sales to ease from the pace set this spring. Bankers do not foresee a significant increase in loan demand.
Contacts in all sectors remarked about the low level of confidence among consumers and business executives as well as concern about increases in taxes, the prospect of government-mandated health insurance programs and increased business regulation in general. Business contacts listed these as factors restraining spending and borrowing by both individuals and firms.
Manufacturing
Third District manufacturers reported a pause in growth in early
June. Around half of those contacted in the first half of the month
said new orders and shipments were running at a steady pace compared
to May. The number of firms posting increases in new orders was
offset by the number experiencing decreases, while slightly more
firms reported a step-up in shipments than declines. On balance,
order backlogs were edging down. While two-thirds of the firms
queried said they were holding employment levels steady, companies
trimming hours and payrolls outnumbered those extending hours and
hiring workers.
Looking ahead, area manufacturers remain somewhat optimistic, on balance. Overall, they forecast renewed but modest growth in orders and a slightly quicker pace of shipments for the second half of the year. Plans for capital spending, however, call for only slight increases, and employment estimates for the second half indicate some reductions in hours and work forces.
Retail
Third District retailers generally reported a healthy pace of sales
for May. While the pace appears to have slipped a bit in June, most
of the merchants contacted for this report said they had expected
some seasonal slowing, and they characterized the situation as
fairly good for early summer sales. Inventories appeared to be under
control. Some store officials said they had to step up promotional
efforts in the past two months to clear out merchandise as a result
of sales lost in the March storm; however, most described their
inventory levels in early June as about right.
While generally expressing satisfaction with the current sales rate, Third District retailers are only cautiously optimistic about the balance of the year. Most of those interviewed forecasted only slow growth in the second half. A general comment was that consumer confidence remained subdued, with concerns about uncertain employment prospects and increased taxation restraining spending.
Auto dealers in the Third District said sales of cars and trucks in April exceeded the year-ago period by more than had been expected. While truck sales appeared to remain strong in May and early June, the pace of car sales seemed to have eased. Most dealers expect the sales rate for the balance of the year to be below the April pace and, like other retailers, dealers voiced concern that consumers did not have a sufficiently confident outlook to significantly step up spending.
Finance
Based on comments from major Third District banks, overall lending
was flat in early June. While some institutions reported modest
gains, on balance loan demand was reported to be low despite active
promotional efforts. There were some reports of increased credit
card and indirect auto lending as well as stepped up borrowing by
small and mid-size companies, but bankers indicated that the volume
of new loans being booked was not large.
Bankers echoed retailers comments that low confidence and concern about tax increases are restraining consumer spending. They added that potential business borrowers are also apprehensive about the possibility of increased regulation and the costs of a government- mandated program for health insurance. Under these conditions, bankers contacted for this report said they do not expect an improvement in economic growth or significantly stronger loan demand.