February 12, 1975
The January survey of Fifth District businesses reveals further deterioration of business conditions. Reports from across the District indicate continued economic weakness exacerbated by spot shortages of critical energy supplies. Unemployment has reached or is approaching record levels in many areas and pockets of severe unemployment are becoming more common. The responses of manufacturing concerns show continued weakness in new orders and further declines in shipments and backlogs of orders. Reports of plant closings and layoffs continue across a broad range of manufacturers. Survey responses indicate a further accumulation of finished goods inventories and growing concern over present levels. Commercial and industrial loans at District weekly reporting banks declined sharply in January; real estate loans are exhibiting a gentle but persistent rise while consumer loans remain sluggish. In the agricultural sector, changes in relative prices during 1974 appear to be altering the prospective crop mix for the coming planting season, with major shifts from cotton to soybeans and feed grains.
Manufacturers' responses to our latest survey reveal the continuation of several persistent trends. Over 70 percent indicate further declines in backlogs of orders and almost as many report reductions in the volume of new orders. Meanwhile, over 50 percent report a decline in the number of employees. The volume of shipments continues weak and although the number of employees and hours worked per week are down, inventories of finished goods remain firm. Over 60 percent of the manufacturing respondents view current inventory levels as excessive, compared to about 50 percent a month earlier. Almost half of the manufacturers surveyed consider current plant and equipment capacity excessive, but fewer than 10 percent feel current expansion plans should be cut back.
From around the District reports of plant closings and layoffs continue across a broad range of industries. Recent announcements involve such industries as printing, chemicals, shipbuilding, electrical equipment, and rubber. Meanwhile, actual and potential disruptions of natural gas supplies are contributing to uncertainties in parts of the District.
Our survey of District retailers yields much the same picture. Sales declined in January following an increase in December, while sales of big ticket items continue weak. Responses indicate a reduction in retail inventories for the first time in 7 months, although 50 percent of the retailers still view current levels as excessive. An exception to this situation seems to have developed with regard to sales of new automobiles. The sales policies initiated by the manufacturers have given a significant boost to sales in this sector.
Although no trend is discernible at this time, there is some indication of a slowing of price increases. Of the manufacturers surveyed, 35 percent report paying higher prices, down substantially from recent months. At the same time, over 30 percent received lower prices during January. Retailers report paying and receiving higher prices generally, but such reports are not nearly so common as in recent months, indicating a significant improvement over the last half of 1974. In addition, there seems to have been a break in the mood of pessimism which has prevailed over the past few months. The diffusion of responses reveals some cautious optimism, as more respondents than in recent surveys see an improvement in business activity over the next 6 months.
Lending activity at Fifth District banks appears to have stabilized in January, while interest in investments increased. The level of seasonally adjusted loans at District member banks was almost unchanged from the December 1974 level. Seasonally adjusted bank credit at District member banks showed a net increase after declining in December. The unadjusted data for weekly reporting banks show that commercial and industrial loans have declined at a fairly rapid pace since the beginning of the year. Bankers' acceptances, however, have resisted the general decline, increasing about 100 percent over the month. Real estate loans at weekly reporting banks continue a gentle but persistent rise while consumer loans remain sluggish. Member bank borrowings were at the lowest level since January 1973 following the seventh consecutive month of decline. Savings at District banks seem to have slacked off in January following increases in December.
By and large, last year turned out to be a fairly good crop year but not an exceptional one. Output of some of the major crops was below the record levels a year earlier. But crop prices were generally higher, and value of production of all District crops totaled $3.5 billion—23 percent above 1973. Farm real estate values per acre continued to advance during the year ended November 1, 1974, with increases in District states ranging from 14 to 32 percent. The rate of increase in each state, especially in Virginia and West Virginia, slowed substantially after March 1, however. District cotton producers, reacting to the sharp drop in market prices last year, have indicated that they will plant only about half as much acreage in cotton in 1975 as they did a year ago. Growers' plans to increase soybean plantings 8 percent and feed grain acreage 2 percent will more than offset the severe cut back in cotton, however.