July 21, 1971
The general consensus in the Third District is that the economy is in the midst of a sustainable but sluggish recovery. Manufacturers report some slippage of activity in July, but look for a pickup in August. Their capital spending plans remain essentially flat, and they foresee little stockbuilding until late this year or early next year. Consumer activity is mixed, with department store sales trending upwards but vacation spending apparently off from a year ago. Bankers report weak loan demand and cost pressures. Thrift institutions in Philadelphia experienced a sharp increase in mortgage repayments during June, particularly for older, lower rate mortgages.
Manufacturing activity in the Third District shows signs of weakening some in July. Our latest polling of District manufacturers indicates that more of them are experiencing decreases in sales and new orders than are realizing increases. The consensus, however, is that this setback is only temporary, and that shipments and orders will rebound in August. According to directors the weakness in manufacturing stems from a slippage in industrial demand and "zipless" consumer demand.
Our survey of manufacturing firms also indicates that the business expansion now underway will receive little help from capital spending. Most of the firms canvassed plan "no change" in outlays for plant and equipment for the rest of 1971. As for inventory accumulation, area firms on balance plan to add little if anything to their stocks through the summer months. Looking ahead six months, though, about 40 per cent of the firms contacted say they will be increasing inventories, compared to 20 per cent who plan decreases. The remaining firms look for "no change" from their present stock levels during the next half year.
Retailers in the Philadelphia area seem a little more confident about the outlook for consumer sales. Area department stores report a pickup in sales for June and they are hopeful this increase will carry forward into the second half of the year. Shoppers, however, continue to be price-conscious. Local retailers indicate, for example, that in the home appliance and hardware departments lower priced items are moving but the higher priced lines are selling slowly.
In another sector of consumption, resort business along the New Jersey shore is off from last year. A director from the shore area reports that, while weekend business is holding up, restaurant and motel business Monday through Friday is down substantially from last year despite excellent weather.
Bankers report that business loan demand is "blah." Consumer loan demand has improved but is a long way from being strong. One bank president expressed disappointment at the small gains from his bank's promotional campaign to stimulate consumer loans. In addition, bankers report competition is stiff for certificates of deposit. They also say cost pressures are great and bank profits will continue to be poor. Bankers further indicate that the quality of their loan portfolios is still a big problem, and a great deal of effort is being directed at easing the situation.
Several large thrift institutions in Philadelphia report sharp increases in the amount of mortgage repayments during June. These repayments are for hundreds of mortgages around the country processed through mortgage service companies. For the most part, these repayments are for older, low rate mortgages. One thrift institution president speculates that "savings balances are high and people just want to get out from under any debt obligation, even a low interest rate mortgage."