October 21, 1975
The October survey of Fifth District business conditions suggests a continuation of the recent pace of recovery. Manufacturers continue to report increases in shipments and new orders, although improvement in the orders picture was apparently less widespread than a month ago. Inventories continue to decline, and there is some indication that they are coming into line with desired levels. The number of manufacturers reporting inventories as excessive is the smallest in over a year, although it still amounts to one-third of the respondents. Some improvement in unemployment rates is reported, but it is not clear that increases in employment are the primary factor in this improvement. Our survey of retailers suggests further general improvement in sales, while sales of big-ticket items relative to total sales seem to have stabilized. In the banking sector consumer and real estate loans have continued to post modest but steady gains. Business loans, however, continue sluggish in most parts of the district. In agriculture, lower prices and a smaller volume of sales of flue-cured tobacco have combined to reduce the value of marketings some 12 percent, or over $100 million, from a year earlier.
Manufacturing respondents to our October survey report continued increases in shipments and in volume of new orders. Increases in new orders, however, were not quite so widespread as in the previous month and backlogs showed little change. The diffusion of survey responses this month suggests the greatest, or at least the broadest, inventory liquidation of the year. Over 45 percent of the manufacturers surveyed report declines in materials and almost 40 percent report declines in finished goods inventories. One respondent stated explicitly that his firm is shipping from inventories. This widespread inventory runoff has now continued for six months and may be tapering off. One-third of our respondents, the smallest number in over a year, still view current inventory levels as excessive. About one-sixth report current levels as too low.
While little change in manufacturing employment during September is reported, there does seem to have been some increase in hours worked per week. Respondents reporting increases outnumber those reporting decreases by three to one. Employee compensation and prices continued to move up across a broad range although only one-fourth of the manufacturers reported receiving higher prices during the month of September. Approximately 40 percent of the manufacturers believe that current plant and equipment capacity is excessive, but almost 90 percent feel current expansion plans are about right.
Concerning the outlook for the next six months, there persists a basic mood of optimism although it is not as pervasive as in some recent months, and there is actually less optimism expressed in the outlook for the respondents' respective industries. Fewer than half of those responding expect the level of production in their own firms to improve during the next six months.
The October survey of retailers suggests improved sales during September, but sales of big-ticket items relative to total sales were apparently unchanged. The prolonged relative decline in sales of big-ticket items would suggest that although such sales may have stabilized, they continue at a very low level. Inventories at the retail level declined further during the month and have apparently been brought into line with desired levels. The number of retail employees appears to have declined somewhat, while our survey respondents were unanimous in reporting increases in employee compensation. All respondents reported paying and receiving higher prices. There also appears to have been some deterioration in the outlook as 80 percent of our retail respondents now expect the level of business activity and of sales in their respective firms to be unchanged over the next six months.
Asset expansion among Fifth District banks has followed an irregular pattern in recent weeks, with advances in some loan categories offset by weakness in other areas. Bank interest in investments has also weakened. Consumer installment loan volume at weekly reporting banks continued to show strength in September as compared to earlier months. Real estate loans also expanded in September and are running about 7-1/2 percent above a year earlier. Contrary to expectations expressed in August, and again as recently as mid-September, business loan volume has been weak. The notable exceptions are loans to the retail trade and tobacco industries, where seasonal influences have resulted in strong gains. Demand deposit growth has continued but the rate of inflow of consumer time deposits has fallen and savings deposits have suffered an absolute decline. Rate competition is also affecting S&L deposits. CD attrition continues. Average daily member bank borrowings increased in September to their highest level since January, but net federal funds purchases of member banks fell by about one-third from the August level.
District cash farm income for the January to July period was up about 1 percent over a year ago. The seven-month figure represented the first year-to-date period which showed an increase over the comparable period in 1974. Flue-cured tobacco prices have improved in recent weeks, but the season average price as of October 2 was still running 6 percent under last year's level. September 1 estimates indicate that the district's 1975 production of field crops, with the exception of tobacco, soybeans, and sweet potatoes, will be under 1974 levels.