Beige Book Report: Philadelphia
November 1, 1995
Economic conditions in the Third District were mixed in October. Manufacturers reported continuing gains in orders and shipments. General merchandise retailers noted a slowdown in the pace of sales, extending from September into October. Auto dealers generally indicated that sales were steady but that the rate in recent weeks was below the rate set in late summer. Lending by commercial banks was moving up, with gains in commercial and industrial loans and credit card loans. Most of the commercial and residential realtors contacted for this report described real estate activity as steady. Commercial construction activity was not strong, and some reports indicated that residential building was slowing.
Looking ahead, manufacturers expect business to continue to improve. Retailers are apprehensive that the current slow pace of sales may persist, but auto dealers anticipate some improvement in the weeks ahead as they take delivery of new models. Bankers said that growth in credit card lending might ease. Realtors expect demand for commercial space to remain relatively flat and they expect the supply of homes for sale to remain large relative to demand.
Manufacturing
Reports from Third District manufacturers in October indicated that
industrial activity was rising. New orders were moving up, and
production appeared to be keeping pace with demand as shipments were
also on the rise while order backlogs were steady. Employment and
working hours also were steady, and manufacturers reported almost no
change in inventories during the month. Firms producing electrical
machinery, metals and metal products, and glass and glass products
reported relatively stronger business, while apparel and furniture
makers indicated that their business had eased.
In general, manufacturers in the region expect the current upward trend to persist in the months ahead. They forecast further gains in orders and shipments, with perhaps a slight increase in order backlogs. Some firms are planning a slight lengthening of the workweek in the next six months, and some intend to step up capital spending during the last quarter of this year and the first quarter of 1996.
Retail
Third District retailers interviewed in mid-October generally said
that the pace of sales had eased in recent weeks. Some major apparel
and appliance stores in the region reported substantial declines in
their business. The slowdown was even affecting discount stores that
had been experiencing stronger business than other types of stores
in late summer and early fall. Store executives expressed surprise
at the recent weakness but said they were planning to keep
inventories lean in case sales do not rebound soon.
Auto dealers in the region also reported a drop in the rate of sales since the summer, although they generally said that the pace had been steady in recent weeks. Dealers believe that the end of model closeout incentives dampened sales, and several said the supply of vehicles had been interrupted due to manufacturers' shutdowns for model changeovers and a strike at firms that transport new vehicles. Consequently, inventories have not risen and dealers expect at least some pickup in sales when new models become available in the weeks ahead.
Finance
Lending at major Third District banks has moved up in recent weeks,
largely due to increased borrowing by businesses. Some bankers
reported that large national firms have stepped up usage of credit
lines. In contrast, these bankers indicated that local middle-market
companies have been reluctant to expand operations and therefore
have not taken on new debt. Consumer borrowing has increased
somewhat in the District, mainly due to credit card lending; other
types of personal borrowing have not been strong. Several bankers
said they believe the growth of total consumer borrowing could ease
in the near future. They anticipate this as a result of possible
deterioration in consumer confidence and tightening of credit
standards by banks.
Real Estate and Construction
Reports from commercial real estate firms in the Third District
suggest that the market has been relatively steady in the past
month, with little change in office vacancy rates. Effective rental
rates appear to have eased a bit recently, and property prices have
remained at what realtors characterize as low levels. Contacts in
the commercial real estate industry foresee no major increase in
demand for space on the immediate horizon, and they anticipate that
new construction will be minimal.
Reports from residential realtors have been mixed, but the overall state of residential markets in the District appeared to be steady in October. New homes were selling somewhat better than existing homes in some markets, although there were reports that land development and construction efforts were being scaled back by some builders. Most of the realtors providing information for this report said there continues to be a large a supply of homes for sale and that demand for homes in the higher price ranges was relatively weak.