September 10, 1975
Business conditions in the Third District continue to improve. Area manufacturers report that new orders and shipments are higher this month than last while inventories are lower. Employment is also marginally higher, and the average workweek has been extended. However, prices paid for supplies and received for finished products are both up over last month. At the same time, these businessmen look for further improvement over the next six months. Manufacturers expect new orders and inventories to be higher, and they anticipate adding employees and lengthening the workweek. Prices are expected to climb, however, and capital spending plans are cautious six months out. The market for existing housing is active, but there's little vigor in new housing starts. Retailers report that sales are flat or up slightly, and they look for some improvement through year-end. Area bankers report level demand deposits while savings accounts are steady or off slightly. In addition, bankers indicate that loan demand is flat.
Third District manufacturers, responding to this month's Business Outlook Survey, report economic expansion for the second consecutive month. Almost 40 percent of the respondents report an improvement in overall business conditions this month. The level of new orders is generally higher and fewer than 10 percent of the respondents indicate a drop in new orders this month. Last January, by comparison, almost half were reporting a decline in new orders. Shipments of manufactured goods are up as well. Overall, inventories are down, but there are some signs that they are stabilizing. Half of the manufacturers surveyed report no change in their stocks on hand. Employment is also a "plus." Manufacturing work forces crept up slightly this month, and for the first time in a year the average workweek is longer.
The longer-term outlook in manufacturing is optimistic. None of the executives surveyed expects a decline in general business activity within the next six months while almost 90 percent anticipate improvement. In fact, none of the respondents expects new orders to be lower through March and most expect them to be higher. Moreover, almost one-third of the executives polled plan to increase their inventories over the period. Prospects for employment are bright as well. None of the respondents anticipates a reduced work force or shorter workweek, while 43 percent plan to hire additional employees and 40 percent foresee a longer average workweek. Plans for capital spending are still conservative, however, with almost 60 percent of the respondents expecting to hold the line through late winter.
Retailers in the area report that sales are even with or slightly above the levels of the last few months. Soft goods and some heavily-advertised appliances are reported to be selling well. One retail executive looks for sales to stay flat in real terms through the rest of this year while another expects sales to improve by the end of the year and looks for a strong spring. All of the merchants contacted report that inventories have been reduced below their 1974 levels and that inventory/sales ratios are where they want them.
On the price front, manufacturers report higher prices this month compared to last for their supplies as well as for their finished products. One-half of those surveyed report paying higher prices compared with one-fourth last month. In addition, prices received for finished manufactured goods are up slightly this month. This is the first time since February that the number of respondents receiving higher prices exceeds those receiving lower prices. For the longer term, manufacturers expect prices to rise further. More than three-fourths of the businessmen polled expect to be paying higher prices six months out, while almost 70 percent anticipate receiving higher prices for the products they sell. Retailers in the area report paying slightly higher prices for their supplies while trying to keep the prices they charge "competitive." One merchant notes that his store is finding it somewhat easier to pass along small cost increases.
The resale housing market in the area is reported to be brisk, but new starts are minimal. One MSB official notes that demand is strong and there's heavy mortgage lending for used housing. But he sees the anticipation of higher interest rates hampering new housing starts. Though mortgage rates at this contact's bank are currently 25 basis points below Pennsylvania's legal ceiling, he feels that if the recent net outflow of savings continues into next year, mortgage rates will go to the ceiling and mortgage lending will be impeded.
Bankers in the District report that, in general, loan demand is flat. The outlook is for lending to increase modestly with the recovery, but no big pickup is foreseen during the next year. Area financial executives expect the economy to recover gradually with annual real growth in the 4-6 percent range through most of 1976. In addition, they see only slow improvement in unemployment. All of the bankers contacted feel that inflation is still a major concern and one expects double-digit inflation within 18 months. Another banker in the District is concerned about how the recovery will be financed, noting that improvements in bank liquidity have not been substantial, and that it will be difficult for banks to raise capital. Area bankers look for short-term interest rates to trend upward, and all express concern over the projected Federal deficit. They feel that borrowers will be "crowded out" to some degree, and that this will put a damper on recovery.