Beige Book Report: Philadelphia
August 3, 1994
Economic activity in the Third District was edging up in July, according to reports from businesses in the region. Manufacturers indicated that shipments and orders were moving up modestly, although employment was steady. Auto dealers were seeing renewed growth in sales in July after a brief pause in June. General merchandise retailers, however, generally reported somewhat softer sales in July compared with June, especially for apparel. Bankers said consumer lending continued to move up and commercial lending was rising also, albeit slightly. Real estate loan volume has been flat.
Looking ahead, business contacts in the District expect growth to continue, but at a somewhat more subdued pace than in the first half of the year. Manufacturers anticipate further gains in new orders and shipments, but they do not expect order backlogs to increase. Auto dealers forecast sales for the year as a whole to exceed sales for last year. Retailers expect a boost from back-to-school shopping, but they anticipate only a slight increase for the second half of this year compared with the same period last year. Bankers predict that slower economic growth in the second half will restrain the growth of loan demand.
Manufacturing
Reports from Third District manufacturers in July indicated that
activity remained on a moderate upward trend. About one-third of the
industrial firms contacted said they were posting gains in both
shipments and new orders while about half said shipments and orders
were running at a steady pace. Conditions varied by sector, however:
improvement was reported among makers of paper products; chemicals;
electrical machinery; transportation equipment; and stone, clay, and
glass products; declining activity was noted by makers of textiles,
primary metals, and nonelectrical machinery.
Employment at Third District manufacturing plants was steady in July, according to reporting firms, with both employee numbers and hours level. On balance, area industrial firms were allowing inventories to fall slightly.
Looking ahead, about 40 percent of the firms contacted for this report expect business to continue to improve during the next six months. They anticipate gains in shipments and orders, but they do not expect demand for their products to be strong enough to push order backlogs up or to require extending hours or adding workers.
While half of the firms surveyed reported that prices for inputs were steady in July, about 40 percent noted increases for at least some of the goods they purchase. About two-thirds of the firms were holding the line on prices of the products they make, but nearly one-fourth were implementing price increases. Nearly two-thirds of the manufacturers commenting on price expectations said they anticipate higher input costs over the next six months, and two- fifths plan to charge more for the products they make.
Retail
Third District retailers indicated that sales in July ran somewhat
below the levels of the spring months. While some said that normal
seasonal factors could be the cause of the slowdown, several noted
that sales of clothing, especially woman's apparel, remained weak as
spring and summer fashions failed to attract consumers' interest.
Despite slower than expected sales, most of the merchants contacted
for this report said their inventories were not significantly higher
than planned.
Retailers generally expect the pace of sales to accelerate with the fall hack-to-school shopping period. Some expressed the opinion that clothing sales will bounce back once fall styles are in the stores. Most area merchants predict just small gains in overall sales, however, as they expect economic growth to begin slowing in the second half of the year.
Third District auto dealers said sales slipped a bit in late June but appeared to be picking up again in late July. In general, dealers still expect sales for the year as a whole to be good, and to exceed last year's level by a modest amount.
Finance
Third District bankers generally reported moderate loan growth in
July. Most of those contacted said consumer lending for both credit
cards and installment loans continued to expand. Commercial lending
has been moving up slightly, according to bankers. With the decline
in mortgage refinancing, residential real estate lending activity
has dropped at banks in the District and mortgage loan volume
outstanding has been level.
Most of the bankers surveyed in July foresee some slowing of economic activity in the second half of the year, and they expect a consequent slowdown in the rate of loan growth. Also, comments from some bankers indicate that they may become more cautious in consumer lending in response to rising ratios of consumer debt to income. This restraint may take the form of reduced credit lines and greater collateral coverage for secured debt such as auto loans and home equity loans.