Beige Book Report: Philadelphia
September 8, 1993
Reports from various sectors of the Third District economy were mixed in August, although indications were that overall activity was steady. Manufacturers reported steady orders but a drop in shipments. Retailers indicated sales were seasonally slow but slightly above the level in August of last year. Auto dealers said at upward trend in sales persisted through the month. Bankers generally indicated that overall loan volumes were edging up, with weakness in commercial loan demand being offset by increased consumer lending. Mortgage refinancing volume was growing. Realtors and builders said sales were up compared with last year for new and existing homes in lower price ranges, but were off for higher priced homes. Commercial real estate activity remained weak, especially in the Philadelphia central business district, but there were some reports that demand for office space in suburban areas was a bit firmer.
Looking ahead, manufacturers expect conditions to improve, but they do not plan to step up hiring. Retailers express cautious optimism for the fall, and auto dealers expect the upward trend in sales to continue through the rest of the year. Bankers generally expect consumer lending to continue moving up modestly, but most do not expect commercial loan demand to strengthen in the immediate future. Realtors anticipate continued weakness in commercial real estate activity.
Manufacturing
Third District manufacturers continued to report slack conditions in
August. Around half said new orders and shipments were running at a
steady pace. While as many firms reported increases in orders as
reported decreases, the number of firms that indicated shipments had
dropped was slightly greater than the number that posted increases.
Around three-fourths of the firms contacted in August said they were
holding payrolls steady, but nearly one-fourth were making cuts.
Inventories were generally described as steady.
Looking ahead, nearly half of the manufacturers surveyed in August expect conditions to improve over the next six months, while only one in ten anticipates further weakening. On balance, industrial firms in the region expect rising orders and shipments. Overall, area firms' plans for the next six months call for some slight increases in capital spending but no change from current employment levels.
Retail
Most of the Third District retailers contacted in late August said
sales were seasonally slow as the back-to-school shopping period was
just getting under way. Many noted that sales were running a bit
above the pace set last August, and they expect slight year-over-
year gains to persist through the fall months. Auto dealers
generally indicated that sales in August were above the level of
August 1992. They expect the growth trend that began this spring to
carry through the rest of the year.
Finance
Total loan volume outstanding at major Third District banks was
edging up in August, according to reports from bankers. Most said
that consumer lending was rising while commercial and industrial
loan volumes were steady or easing. Bankers also said that home
mortgage refinancing activity was strong, with borrowers preferring
fixed-rate loans.
While most bankers said they did not expect commercial loan demand to increase in the immediate future, some said discussions with potential business borrowers indicated that commercial loan demand could begin to improve as previously postponed capital spending projects are reviewed. Bankers generally expect consumer loan demand to remain on a modest upward trend. While some noted signs of increasing home sales and purchase-mortgage originations, the gains are not expected to be strong.
Real Estate and Construction
Third District contacts in residential real estate and construction
indicated that the pace of new home construction and sales this
summer has been about even with last year's rate. For both new and
existing homes, realtors said there was strong demand for those in
the price range associated with first-time home-buying. They said
these homes were selling at a better rate than last year because of
lower mortgage rates and some easing in price from prior years.
Several realtors noted slower sales and growing inventories of
existing homes for sale in higher price ranges.
Commercial real estate activity remained slow, according to realtors and property managers contacted for this report. The demand for office space in Philadelphia was weak, according to real estate contacts, while demand in suburban areas appeared to be somewhat firmer. Real estate contacts expect demand for office space to remain soft as a result of the slow job growth they anticipate.