September 10, 1975
The September Survey of Fifth District Business Conditions reveals continued improvement across a broad range of economic activity. Responses indicate sizable increases in manufacturing shipments and new orders along with greater backlogs of orders and further reductions of inventories, particularly of raw materials. Inventories of finished goods apparently declined only slightly during August. Over 40 percent of manufacturing respondents still view current inventory levels as excessive. Employment seems to have increased slightly in the manufacturing sector while hours worked per week increased for the fourth consecutive month. Among retailers participating in our Survey, sales were generally up for the month, and sales of big ticket items relative to total sales remained unchanged. Prices apparently rose across a wide range as substantial numbers of manufacturers and retailers reported paying and receiving higher prices. In the banking sector, commercial and industrial loans outstanding at Weekly Reporting Banks have declined over the past several weeks while consumer loans continued to post modest but steady gains. Both demand and time deposits have shown weakness during August.
Among manufacturers responding to the September Survey, one-half reported increases in shipments and in the volume of new orders during August. In addition, those reporting increases in backlogs of orders outnumbered those reporting decreases by two to one. In each of these areas, the improvement was more broadly based than at any time in recent months. These improvements in the level of business activity seem to be most pronounced in the basic industries and in consumer related areas. Textile mills, apparel and related products, and furniture and fixtures accounted for a sizable portion of the improvement along with primary metals and chemicals. Judging from the Survey, those industries which seem to be lagging are in the machinery and equipment, and electrical equipment areas, although the food industry also reports little change. Inventories of materials held by manufacturers declined further during August while stocks of finished goods showed little change. As in August, over 40 percent of the manufacturers feel current inventory levels are excessive. But almost all of those surveyed are satisfied with current expansion plans.
Prices seem to have taken a turn for the worse during August, as over half of the manufacturers responding to our Survey report paying, and over one-third report receiving, higher prices. The Survey of Retailers yielded much the same results concerning prices. The indicated price movement may have contributed to the minor deterioration of the outlook for the next six months. While our Survey respondents remain basically optimistic, that feeling seems to have weakened slightly in the past month, despite the fact that recent optimistic expectations have been largely borne out by business developments. One manufacturer surveyed specifically noted his expectation that the level of business activity will improve during September and October and then fall off for the remainder of the year.
Other results from our Survey of District Retailers also support the view that business activity is continuing to improve. Over one-half of the retailers surveyed reported increased sales during August. During that period, sales of big ticket items relative to total sales remained unchanged. In view of the improved level of total sales, the situation in big ticket items may be significant. Judging from our monthly surveys, sales of big ticket items have been declining, in both absolute and relative terms, for the past year. If the relative decline has abated and total sales are, in fact, beginning to increase, the general recovery may be due for a substantial new impetus from the durable goods sector.
Inventories at the retail level declined slightly during the month and most Survey respondents view current levels as about right. There is also general satisfaction, among the retailers surveyed, with the number and size of outlets presently operating. Retailers also remain basically optimistic with regard to the outlook over the next six months, expecting improvement nationally, locally, and within their own firms.
There is a widespread expectation among Fifth District bankers that business loan demand will increase, at least moderately, by the end of the year. Nevertheless, commercial and industrial loans outstanding at Weekly Reporting Banks over the past several weeks have declined from the level reached after a surge in demand during July. There has been no easing in the firm credit standards that have become common at District banks. Consumer loans continue to post modest but steady gains, and it appears that some banks are becoming more interested in these types of loans. In fact, District banks seem more receptive to making most types of loans, with the exception of multifamily mortgage loans.
Both demand and time deposits have shown some weakness during August, and savings deposits at Weekly Reporting Banks declined for the first time this year. CD holdings have remained rather steady, while average net Federal funds purchases and discount window borrowings have increased to offset liability declines in other areas.
The District's cash receipts from farm marketings during the first half of the year were 2 percent under the same period last year. The District decline is much less than that for the nation, however.
Better quality marketings and improved grade prices have combined to bring about an upward trend in the general average price for flue-cured tobacco over the past several weeks. Flue-cured prices for the season through September 5 averaged 7 percent below a year earlier, however. With gross sales also down (probably because many farmers are holding their tobacco off the market in hopes of further improvement in prices), value of sales is 14 percent under a year ago.