December 7, 1994
Business contacts in the Third District continued to report increases in activity in November. Manufacturers were posting gains in new orders and shipments, and they were extending hours and adding workers. Retailers said that store traffic had picked up and that sales of apparel, consumer electronics, and toys were on the rise. Auto dealers continued to describe the sales rate as good. Bankers generally indicated that business and personal lending were growing, but most said that residential mortgage lending was flat or declining.
Looking ahead, the consensus in the Third District business community is that improvement will continue through the winter. Manufacturers forecast further increases in activity during the next six months, although on balance their employment plans call for payrolls to remain steady during the period. Retailers expect the holiday shopping period to produce year-over-year gains of 5 to 6 percent, in dollar terms. Bankers anticipate a modest upward trend in overall lending, led by growing demand for business and consumer credit, but they do not expect a rebound in residential mortgage activity.
Manufacturing
Third District manufacturers continued to report increasing business
in November. About one-third of those contacted said shipments and
new orders were rising at their plants and about one-half said they
were steady. Producers of durable goods, especially metal products
and machinery, said their business was increasing, but producers of
nondurable goods, especially apparel and other textile products,
said they were seeing declining demand.
Manufacturers in the District said production was keeping up with rising orders, leading to a slight drop in order backlogs. While employment was steady at about three-fourths of the firms polled, nearly one-fourth were adding workers and extending hours.
Nearly half of the manufacturers contacted for this report expect business to continue on an upward trend over the next six months; about one-third foresee steady conditions. On balance, manufacturers are planning to maintain payrolls at current levels and to keep working hours steady. Capital spending plans, however, call for increased outlays over the next six months.
Industrial prices continued to show some upward movement, according to District manufacturers. Just over half of those queried said they paid more for supplies and materials in November than they did in October, and one-fourth said they had raised prices for the products they make.
Retail
Third District retailers interviewed in late November said store
traffic had picked up prior to Thanksgiving and was heavy during the
Thanksgiving weekend. Overall, merchants said sales for the weekend
were good, and they generally expected to meet their sales targets
for the Christmas shopping period. Most forecasted year-over-year
gains of 5 to 6 percent, in current dollars. Retailers' expectations
that apparel, consumer electronics, and toys would be the biggest
selling items for the holidays were borne out by the early sales
activity.
Auto dealers in the District continued to report a healthy rate of sales. There were scattered reports of supply shortages for popular models, but availability appeared to be better than it was earlier this fall. Some dealers believe sales will slip as a result of rising auto loan rates, but none of those contacted for this report had seen a drop yet.
Finance
Third District bankers contacted in late November reported some
growth in business lending, although most described it as slight.
Bankers continued to note that competition among lenders was keen
and interest rate margins were tight. Consumer lending was generally
characterized as healthy, with growth in auto loans and home equity
loans. Most of the bankers contacted for this report said
residential mortgage lending was flat or falling, but some said they
were adding mortgages to their loan portfolios, resulting in an
increase in mortgage loan volume outstanding.
Some bankers said they had stepped up promotional efforts to keep outstanding balances of certificates of deposits from dropping. Others were allowing deposit totals to decline. Several indicated that higher interest rates on competing nonbank investments were prompting consideration of more aggressive pricing on a variety of deposit accounts.
Most of the bankers interviewed for this report were of the opinion that economic activity was on a firm upward trend that could carry into and possibly through 1995. They expect overall loan demand to continue moving upward modestly, led by a small increase in business lending and relatively stronger gains in consumer lending. They do not foresee renewed strength in residential mortgage activity.