Beige Book Report: Philadelphia
September 14, 1994
Business activity in the Third District was increasing slightly in late August, according to reports from regional business contacts. Manufacturers said shipments and new orders were moving up and employment was steady. Retailers gave mixed reports on back-to- school shopping, although sales overall appeared to be running slightly above the pace of a year ago. Auto dealers continued to report a healthy rate of sales. Banks were posting gains in consumer lending and some slight improvement in commercial and industrial lending.
Expectations are generally positive, although not robust. About half of the manufacturers surveyed anticipate further gains in shipments and orders over the next six months; one-fourth expect slower business. Retailers expressed some concern about consumer confidence in the wake of rising interest rates, and although they see no indication of weakening, they are being cautious in forecasting sales for the fall. Bankers expect loan demand to continue moving up at its current modest rate, but they too are becoming concerned that recent increases in interest rates could lead to slower business activity and an easing in loan demand.
Manufacturing
Third District manufacturing activity continued to move up at a
moderate rate in August, according to reports from manufacturers.
About one-third of those queried said shipments and new orders were
on the rise, while nearly one-half said demand for their products
was running at a steady pace. Producers of durable goods generally
reported improving conditions, and most makers of nondurable goods
indicated that business was steady. Manufacturers in the District
reported that output has been matching demand, as evidenced by
inventories and order backlogs that remain virtually unchanged.
Staffing levels and working hours at area plants have also been
steady.
Forecasts by managers at industrial plants in the region are positive, on balance. About half expect orders and shipments to continue to increase while one-quarter foresee no change from the current pace of activity and one-quarter anticipate some slowing. Employment plans at area firms call for no overall change in hours or work forces. About half of the firms contacted for this report plan to keep capital spending at current rates, but nearly one-third intend to step up outlays.
There appears to be some upward movement in industrial prices in the region. Just over half of the manufacturers reporting on prices said input costs have been rising, and just over one-quarter have raised prices for their own products. Few report any decreases for either input or output prices. Looking ahead, the balance of opinion among Third District manufacturers is that prices will increase for both the products they purchase and the goods they make.
Retail
Retailers in the Third District gave mixed reports for the late
August back-to-school shopping period. On balance, however, sales
appeared to be running slightly above the rate of a year ago, in
real terms As has been the case for much of this year, discount
stores were posting better year-over-year gains than other types of
stores. Several merchants noted that fall clothing styles were
selling well.
Retailers said it is difficult to forecast sales for the upcoming fall months. Several expressed reservations about the strength of consumer confidence and voiced some concern that recent interest rate increases may lead consumers to revise their spending plans downward.
Auto dealers described the recent sales pace as good, although several said they were hampered by continuing problems in obtaining enough popular models to meet demand. Nevertheless, most of the dealers contacted for this report said they were satisfied with their current inventories and did not intend to increase them. Dealers generally expect sales to remain healthy as long as auto loan rates do not rise substantially.
Banking
Third District bankers said loan volume in late August was moving up
slowly, propelled mainly by consumer lending. Most of the bankers
contacted for this report said consumer installment lending was
moving up on the strength of car sales and that lending on home
equity credit lines was increasing in response to promotional
efforts. Some bankers reported slight continuing gains in
residential mortgage lending for home purchases, with adjustable
rate loans predominating, but nearly all also said refinancing
activity was at a low level. On balance, bankers indicated they were
seeing slight growth in commercial lending, and they described the
market for business loans as very competitive.
Most of the bankers interviewed for this report foresee little change in business conditions in the region or nation for the rest of the year. They expect the pace of loan growth to remain around its current rate. Some said the possibility that business activity and lending could fade has risen because of recent interest rate increases as well as expectations that further rate increases may occur later this year.