April 9, 1975
Results of the March survey of Fifth District businesses suggest a marked slowing of the current decline in business activity. There is not yet any indication of a turnaround, but the bottom of the decline may be coming into view. Among manufacturers surveyed, inventories were essentially flat over the February to March period, while backlogs of orders declined further and new orders made their best showing in recent months. Inventories remain above desired levels, but the mild optimism noted last month seems to have grown even stronger in March. Among retailers surveyed, sales weakened slightly after showing some improvement in February; but the inventory picture improved somewhat, although half the respondents feel current inventory levels are excessive. Banking conditions have changed little in the past month; loan demand remains depressed and bank liquidity continues to improve. In the agricultural sector, land preparation for spring planting is lagging behind normal because the recent heavy rains and generally wet weather for the past several weeks have brought farming operations to a near standstill in many areas of the District.
Of the manufacturers responding to our survey, approximately one-fourth report increases in shipments and in the volume of new orders during March. While this does not represent a turnaround as such, it suggests some moderation of the pervasive weakness exhibited in recent months. Almost one-half of the respondents indicated further declines in backlogs of orders while the diffusion of responses indicates little or no change in inventory levels. Sixty-eight percent of the manufacturers still view current inventory levels as excessive. But, of those, almost 50 percent feel their inventory adjustment will be completed within three months, and 86 percent expect inventory levels to be brought into line within six months. The responses reveal further declines in the number of employees and in hours worked per week, but the number of manufacturers reporting lower employment and a shorter workweek declined from about 60 percent last month to about 40 percent at the end of March. The relative softness displayed by prices received by manufacturers continued and apparently is spreading to prices paid, although in the latter case the movement is less pronounced and could prove tentative. Over 50 percent of the manufacturers still feel current plant and equipment capacity is excessive, but almost 85 percent view current expansion plans as about right. The lessening in pessimism noted last month appears to be turning to mild optimism. Over 50 percent of the manufacturers surveyed expect the level of business activity to improve over the next six months, and over half foresee an improvement in the level of production in their own firms over that time period.
The survey of District retailers also suggests some moderation in the rate of decline of business activity, although not to the extent indicated by the manufacturers. The dollar volume of sales showed little change during March as sales of big ticket items relative to total sales remained weak. Responses reveal some further declines in inventories, although half the respondents still view current levels as excessive. Of those retailers with excessive inventories, however, 75 percent feel the adjustment will be completed within three months. Employment among retailers surveyed declined in March, but employee average hourly earnings continued to rise. Price increases continued, but were not quite so widespread as in recent months. As a group, the retailers remain cautiously optimistic, expecting that, at worst, business activity will remain the same over the next six months and that the decline may be near an end.
Fifth District banking conditions seem to have changed little since the last Redbook summary. Loan demand remains depressed and banks are apparently continuing their efforts to improve their liquidity. Several banks in the District have expressed a gloomy outlook about the prospects for recovery in the economy before year-end, and are planning accordingly. There is some concern about the retarding effect on recovery which would result from rapidly rising long-term interest rates. As has been the case for nearly a year now, special attention is being given to the loan credit review process.
Business loans at weekly reporting banks continued to decline in March, having fallen about 4.5 percent since the beginning of the year. Lending has recently increased only in the chemical and wholesale trade industries. Consumer loans continue their steady decline and have fallen by 6.8 percent since the beginning of the year. Agricultural credits have increased in the past four weeks, but not as much as during the same period last year. Only in South Carolina has business lending turned upward.
Holdings of CDs seem to have leveled off during March after experiencing a slow decline since early in the year. Net purchases of Federal Funds by District member banks for the first three weeks of the month are about 20 percent below the average level so far this year. Borrowing at the discount window declined for the ninth straight month, with reserve city bank borrowing falling to zero.
The District's farmers indicated on March 1 that their total crop plantings in 1975 would be only a little larger than last year. There would be major acreage changes from 1974 for some crops, however. Cotton acreage, now expected to be down 55 percent, shows the biggest decline. But growers' plans for increasing soybean plantings 8 percent will more than offset the cutback in cotton. Moreover, intended tobacco acreage is up 15 percent, while acreage seeded to winter wheat last fall was 11 percent larger.
Total cash receipts from farm marketings in January were 10 percent below a year ago, with declines in crop and livestock receipts about equal.