Beige Book Report: Philadelphia
December 6, 1995
Economic activity in the Third District moved up in November, although the improvement appeared to be modest. On balance, manufacturers reported increases in orders during the month, but the gains were not nearly as widespread as they had been earlier this fall. Retailers indicated that cold weather had boosted sales of winter apparel and that the overall pace of sales was turning up, with Christmas shopping running about in line with their modest expectations. Auto dealers, however, said sales of new models were running below expectations and the sales rate has been slipping. Bankers generally reported continued growth in major credit categories, and some renewed strength in consumer lending, primarily credit cards.
The outlook in the Third District business community is generally positive, although expectations are not robust. Despite the recent easing of growth in manufacturing activity, the balance of opinion among plant managers in the region is that growth will accelerate in the first half of next year. Retailers anticipate that sales for the holiday shopping period this year are likely to be ahead of last year's by only a few percent in dollar terms. Bankers expect to add to commercial and industrial loans outstanding, and they expect some further growth in consumer lending, but they are apprehensive that retail sales may ebb, limiting the gain in this credit category.
Manufacturing
Manufacturing growth in the Third District eased substantially in
November, according to reports from area firms. While one-third of
those polled for this report indicated that they were getting
increased orders, one-quarter said they had seen a drop in orders in
the past few weeks. In general, firms producing machinery and stone,
clay, and glass products were experiencing relatively better
business conditions while firms in the metal, textile, and apparel
industries reported slackening activity. Shipments were about steady
for the District's manufacturers overall, and inventories have
remained level. Employment measures reflected the slower pace of
growth. On balance, industrial plants in the region have been
maintaining steady work forces, but they have trimmed hours
slightly.
Despite the slower growth in November, the balance of opinion among Third District manufacturers is that shipments and orders will pick up during the next six months. While most firms plan to maintain steady payrolls, slightly more intend to add workers than cut back. Investment spending plans are positive as well. On balance, manufacturers are scheduling higher capital outlays in the next six months.
Retail
Third District retailers polled in late November noted that the
onset of cold weather toward the end of the month boosted sales of
winter apparel. This has helped department store sales, but discount
stores once again reported somewhat better performance than other
types of outlets. Christmas shopping was noticeably under way by
mid-November, according to store executives, but consumers'
purchasing plans appeared to be modest. Both merchants' forecasts
and local surveys of shoppers suggested that the year-over-year gain
for this holiday shopping period is not likely to exceed the
increase in 1994, approximately 4 percent in current dollar terms.
Sales for the Thanksgiving weekend were consistent with these
expectations, according to merchants. They said sales of personal
computers and related items and toys were relatively good, although
the dollar volume of toy sales may be limited by the absence of
widely popular items this year.
Auto dealers reported that sales of new model cars have not met expectations; as a result, inventories have risen above desired levels. The rate of unit sales has slipped from the pace set in the first three quarters of the year, according to dealers contacted at the end of November, and they are paring back their sales estimates for the fourth quarter and for 1996.
Finance
Bank lending in the Third District was on the rise in November, with
growth in all major credit categories. Commercial and industrial
lending continued to move up, although bankers generally noted that
the raze of increase had eased from earlier in the fall. Bankers
said competition for new business loans was tight and margins were
narrow. Consumer lending was getting a boost from increases in
credit card loans. Real estate loans booked by major Third District
banks remained on - upward trend. Real estate loan volume has been
rising at a slow but relatively steady pace since the summer.
Looking ahead, bankers expect some further increases in commercial and industrial lending, although they expect the market for new business loans to remain competitive. However, they anticipate that retail sales will not be strong and that, consequently, gains in consumer lending as well as lending to retailers will be limited in 1996.