August 13, 1975
Economic activity in the Third District is beginning to turn around. Manufacturers report increases in new orders and shipments, and inventory cuts slowed from last month. In addition, most manufacturers have stopped reducing their work forces, and a few are adding to them. On the inflation front, prices paid are up while prices received are down somewhat. The longer term outlook continues to be optimistic. Area manufacturers expect new orders, shipments, and inventories to be higher six months out, and they plan to add to their work forces and lengthen the average workweek over the period. But more inflation is anticipated, and caution prevails on plans for capital expenditures. South Jersey shore resorts generally report that business is thriving, and the rest of the season is expected to be strong. Area retailers report sales volumes holding steady and look for a gradual upturn through the fall. Bankers in the District report a slump in demand deposits, while savings accounts are growing moderately. Bankers also indicate that loan demand is weakening.
Manufacturers responding to this month's business outlook survey report a substantial improvement in business over last month. One third of the respondents report an increase in overall business conditions this month, compared with 15 percent last month and only 4 percent in January. They indicate that new orders and shipments are up significantly and unfilled orders are increasing. In addition, the proportion of respondents reporting lower inventories dropped appreciably from last month. The employment picture is also considerably brighter. Cutbacks in work forces slowed dramatically, with almost 80 percent of the respondents reporting no change. In addition, those reporting increases in jobs outnumber declines for the first time since August 1974. The length of the average workweek continues to hold steady, with 85 percent of the manufacturers surveyed indicating no change.
The outlook for the next two quarters is optimistic. Area manufacturers expect new orders, shipments, and unfilled orders to be higher. Furthermore, they expect projection of a net inventory accumulation to be adding to their inventories by early 1976. This is the first six-month projection of a net inventory accumulation in more than a year. In addition, over 40 percent expect the workweek to lengthen, and more than one third anticipate hiring additional employees. Capital spending plans, however, remain less than robust, with more than half of those surveyed planning no change over the next half year.
On the price front, area manufacturers report paying higher prices for their supplies and receiving lower prices for their finished products. Their outlook for the fall and winter is for prices paid and received to be up. Despite some slight easing from last month in expectations in higher prices six months out, three fourths of the respondents anticipate paying higher prices while half expect to be receiving higher prices for the products they sell. Retailers in the area report no obvious trends with respect to prices. One merchant, for example, indicates that the prices he charges are edging up slightly, but the consensus among retailers is that no significant price movements are evident.
Business at South Jersey shore resorts is good. As one contact put it, "people-wise" this season is the best we've ever had. We expected people to be here, but not to be spending the way they are. In general, merchants feel that revenues are well ahead of last year, and local officials look for a strong second half of the season. They report that hotels and motels are almost fully booked from the last week in July through Labor Day. Only one resort contact reports that business is off to some degree from last year, but he attributes it primarily to a rainy week in mid-July.
Bankers in the District report that savings accounts are growing modestly, but the comments on demand deposits range from "holding steady" to "disappointing". One banker indicates that demand deposits are in a decided seasonal slump, and no improvement is expected until late September. Loan demand is reported to be weakening further. One financial executive reports a pronounced slide in loan demand and indicates that his bank has gone out of its way to get larger customers to move any borrowing plans forward.
Most of the bankers surveyed feel that the banking industry is liquid enough to absorb stronger loan demand in a modest recovery, but several feel that this depends on the amount of pressure exerted by the supervisory authorities to build bank capital. One banker expresses the view that "At the bottom of it all, every bank has loans that are in real trouble."
Area financial executives on the whole look for interest rates to be level or gradually increasing through 1975. The majority of bankers contacted express little concern about the recent upturn in short-term rates, and feel in general that Fed policy is about on target. But one dissenter is uneasy over the attempt to hold annualized Ml growth within the 5 to 7 1/2 percent range for any given three-to six-month period. With a strong fourth quarter, he sees a real risk of absorbing the recovery by letting interest rates rise at the wrong time. In his opinion, the FED overacted and failed to assess the negative psychological impact of rising rates at this stage of the recovery.