July 9, 1975
Judging from our June survey of District business conditions and from other available information, there appears little doubt that recovery is getting under way in the Fifth District. Survey responses of manufacturers indicate increases in shipments, new orders, employment, and hours worked per week, with backlogs of orders unchanged and inventories continuing to decline. Both manufacturers and retailers continue to express cautious optimism about the outlook for the remainder of the year although responses suggest lingering doubt about the vigor of the recovery. Overly conservative inventory policies and the high cost of financing are seen as possible impediments to a full recovery any time soon. The Fifth District banking situation continues to reflect a relatively low level of real economic activity and a cautious posture on the part of business borrowers as well as banks. Loans outstanding in most categories at weekly reporting banks declined in June, while investments increased and the liability mix moved in favor of time deposits.
The June survey of Fifth District business conditions indicates continued improvement in most areas of business activity. More than 40 percent of the manufacturing respondents reported increases in shipments and in the volume of new orders. Backlogs of orders were essentially unchanged after declining for over a year. Almost 43 percent of the manufacturing respondents feel current inventory levels remain excessive, although their responses suggest a further substantial decline in stocks of both materials and finished goods in June. On the employment front, 38 percent of the respondents report an increase in the number of employees while only 12 percent report a decrease. This tends to bear out an increasing number of informal reports of rising employment and declining unemployment across the District and represents a significant change from recent months. Hours worked per week also increased in June according to our survey, but some industries are still on short time.
Responses of manufacturers also suggest continuing upward pressures on prices. Twenty-eight percent of the respondents reported paying and receiving higher prices, with the same percentage indicating increases in average hourly compensation of employees. Current plant and equipment capacity remains above desired levels, but there is no indication of any desire to alter current expansion plans. Over half the manufacturers surveyed now expect production in their own firms to improve over the next six months. A majority also foresee improvement in business conditions locally and nationally over that time period.
Reports from the textile industry indicate that business is beginning to pick up as retailers have achieved manageable inventory levels and are resuming purchasing activity. Some textile manufacturers are becoming more aggressive in the production and marketing of new lines of merchandise. Others, however, express some concern over the reluctance of retailers to commit themselves to larger inventory positions. They believe that a continuation of policies for maintaining lean retail inventories may lead to some loss of sales at the retail level and retard recovery in the manufacturing sector. In any case, it seems likely that some hesitate to make the first move in stepping up production without a commitment by retailers.
Meanwhile, our survey of District retailers shows sales strengthening in June for the second consecutive month, although the sale of big-ticket items relative to total sales remains weak. Inventories at the retail level declined somewhat, and those retailers surveyed feel current inventory levels are about right. Prices, for the most part, were unchanged during June, and increases in employee compensation were less widespread than in recent months. Respondents to the retail survey were unanimous in expecting conditions to improve over the next six months.
The consensus among District bankers is that the economy has bottomed out but that recovery will take place only very slowly. Commercial and industrial loans at weekly reporting banks in June were nearly 6 percent below last year's level; but lending officers believe that the decline has about ended, and some expect improvement in the months ahead. One bank specified textile industry term loan demand as an area of improvement. Several banks report that utilization rates on loan commitments are at the lowest levels of the last several years but that requests for new and increased lines of credit are fairly strong. Some problem construction loans still exist and are being worked out. Bankers express a hope that increased recreational activity will facilitate residential sales at projects that have suffered in resort areas.
Total demand deposits at weekly reporting banks were 1.8 percent higher than a year earlier, while savings deposits were 15.5 percent higher with strong inflows continuing. CD's outstanding declined 2.3 percent from May, and net Federal funds purchases of District member banks during the first three weeks of June reached their lowest level since April 1973. Borrowings at the discount window increased somewhat in June, especially at month's end, but are still at an extremely low level by historical standards.
Farmland values rose at a significantly slower pace during the year ended March 1, 1975, than in other recent years. District-wide, average farm real estate values per acre advance 11 percent, but the increase compared with gains of 26 percent in 1974 and 16 percent in 1973.
Farmers' cash income from farm marketings continues to run well below a year ago, although the 11-percent District decline from the January-April period is much smaller than that nationally. But this situation may well change. Eastern North Carolina's tobacco, corn, and soybean crops have been hard hit by drought conditions.