November 12, 1975
Economic activity in the Third District is growing, but at a slow pace. Manufacturers in the region report that business conditions are better than they were last month, but there is little evidence of any substantial gains. New orders are up slightly from last month, and inventory liquidation continues. Manufacturing employment is also marginally higher, and the average workweek is a shade longer. On the inflation front, prices paid and prices received are both higher.
Businessmen expect economic activity in the region to expand over the next two quarters. They look for new orders to be higher, and they plan to stop reducing their inventories. Manufacturing employment and the average workweek are both expected to be higher, and some increases in capital expenditures are anticipated. But the higher level of business activity is expected to be accompanied by higher prices as well.
Area retailers report that sales volumes are higher compared to a few months ago and that they are looking for a strong Christmas season. Retailers also report an easing of price pressures in their sector. Bankers in the region note that demand deposits have remained about level while savings accounts have increased slightly in recent months. Bankers also indicate that loan volume is essentially flat.
Manufacturers responding to this month's Business Outlook Survey report an improvement in business over last month. Forty percent of the respondents report an increase in business activity this month, but there are few signs of any vigorous expansion. While new orders are higher, on balance, the increase is substantially below the gains reported in each of the previous three months. The proportion of respondents reporting increases in new orders this month exceeds the proportion reporting declines by only 8 percentage points compared to about 30 percentage points on average in the August-October period. At the same time, cutbacks in inventories continue with almost 30 percent of the manufacturers polled reporting fewer stocks on hand. Employment is slightly higher for the fourth consecutive month, and the manufacturing workweek is fractionally longer.
The outlook in manufacturing for the next six months is optimistic. Eighty percent of the executives surveyed anticipate further gains. New orders are expected to be higher, and no additional reductions in inventories are planned. At the same time, employment is expected to grow. Almost 40 percent of the respondents expect to add to their work forces, and close to 30 percent of them plan to lengthen the average workweek. In addition, capital expenditures are beginning to perk up. Of the manufacturers surveyed, 35 percent expect to increase their spending for plant and equipment by May, while only 5 percent of them expect to reduce that spending. This difference of 30 percentage points is the largest net increase since June 1974.
Retailers in the area report that sales are moderately higher than they were a few months ago; there are mixed reports on the relative strengths of durables and nondurables. One retail executive notes that sales are in line with his forecast of last March but below his revised forecast of midsummer. All of the retailers contacted are looking for a strong Christmas season and a healthy spring. One merchant notes that his optimism for next year rests largely on continuation of the current tax cut. There is general agreement that inventories are at desired levels. One contact is anticipating spot shortages of some goods around mid-December. He feels that with strong Christmas buying the stocks of some items will be depleted and, with the presently conservative attitude on inventories, retailers will be reluctant to reorder.
On the inflation front, manufacturers report higher prices this month compared to a month ago for the goods they buy as well as for those they sell. Fifty-eight percent of the respondents report paying higher prices, while 15 percent are receiving higher prices for the products they sell. The outlook for the longer term is for additional increases. Almost 90 percent of the manufacturers polled expect to be paying more for their supplies by May, and close to 70 percent expect to be charging more for their finished goods. Conversely, area retailers report some easing in prices. There is general agreement that the upward climb in prices has leveled off to some degree, and one merchant notes that the prices he pays for a few products have fallen.
Area bankers report that loan volume is flat, and they foresee no
substantial increase through the middle of next year. Most feel that
excess capacity and substantial corporate liquidity will restrain
business borrowing in the near future. One financial executive
expects his bank's volume of both business and consumer loans next
year to average about 4 percent above year-end 1975 levels. Bankers
expect the decline in short-term interest rates to be temporary,
with the prime rate dropping to 7 1/4 percent before turning back up
as the end of the year approaches. In addition, none of the bankers
contacted feel that the recent reduction in reserve requirements on
long-term time and savings accounts will have any significant impact
on available funds. There is general agreement that the situation in
New York City has not caused any substantial shift in the attitude
of area banks toward holding municipal securities. Most of the
bankers report that municipal bond holdings are being reduced, but
the primary motive for this, they say, is unrelated to New York
City. Soft profits have curtailed their need for
tax-exempt income.