November 12, 1975
The November survey of Fifth District business conditions shows improvement in many areas of activity. Manufacturers report increases in shipments, orders, and backlogs, while inventories continue to decline across a broad range. Overall, inventories appear to have been brought into line with desired levels, but there remain firms and industries which view current levels as excessive. In manufacturing, the number of employees and the length of the workweek are up from the previous month, and increases in average hourly earnings are widespread. Some upward price pressures continue in evidence. Over one-third of the manufacturers surveyed view current plant and equipment capacity as excessive, but there continues to be little interest in revising current expansion plans. Retailers surveyed report sales improved substantially and sales of big-ticket items relative to total sales increased for the first time in well over a year. The district's farm income has improved further, gaining 2 percent over a year earlier for the January to August period. At Fifth District banks, business and consumer lending grew moderately in October but real estate lending leveled off. Investments have declined, and bank credit has shown little change.
Of manufacturers participating in the November survey, over 50 percent report increased shipments during the month and nearly as many show increases in new orders. Backlogs appear to have increased slightly; inventories of both finished goods and materials have declined further. Compared with earlier surveys, fewer firms are now reporting reduced materials inventories and more are reporting reductions in finished goods. The diffusion of survey responses suggests that inventories have been brought into line with desired levels, although only about one-half of all respondents view current levels as satisfactory. The remaining one-half are almost evenly divided between those who view current inventory levels as excessive and those who view them as inadequate. Textile mills surveyed generally view inventories as being in excess, while apparel manufacturers hold the opposite view. Furniture and chemical manufacturers feel current levels are about right, while in the machinery and equipment industry responses vary from firm to firm.
Survey responses of manufacturers further suggest some increase in employment and a lengthening of the workweek since the last survey. Nearly one-third of the respondents report increases in these areas. Employee compensation and prices paid continue to move generally upward, joined this month by prices received. Over 35 percent of manufacturers continue to view current plant and equipment capacity as excessive, but there is still no strong sentiment for altering current expansion plans. Seventy percent of manufacturers, a higher percentage than last month, expect the level of business activity nationally to improve during the next six months, while half of them foresee improvement in the level of production in their respective firms.
The November survey of district retailers shows a strong upward movement in sales and the first relative increase in sales of big-ticket items in well over a year. Inventories at the retail level apparently have increased somewhat, but three-fourths of the responses indicate that current levels are about right. Despite little change in employment, over 85 percent of the retailers report increases in employee compensation. Prices, received and paid, are generally up over the previous month. Survey responses further indicate a basically optimistic feeling about the outlook for the next six months, as almost two-thirds of those surveyed expect improvement nationally, locally, and in their own firms over that period.
In the banking sector, business loans outstanding for weekly reporting banks have increased moderately compared to the past several months but currently stand 7 percent below last year's level. What strength exists is centered in seasonally strong industries, especially retail trade and the food processing and tobacco areas. Loans to public utilities, however, have also experienced a recent spate of activity. Consumer lending continues to increase at a sluggish but steady pace. Total investments of weekly reporting banks declined by 1 percent from September to October but are still 15 percent above year-ago levels. Holdings of treasury bills have increased, but those of longer-term U.S. government securities have declined. Savings deposit flows have picked up after falling off in September. CD attrition has stopped, even though rates offered by district banks have not increased appreciably in recent weeks. Borrowings from the Fed by member banks have declined to their lowest level since June. Net federal funds purchases have remained about level.
Farm income for the first eight months gained 2 percent over a year ago. This increase contrasts with a 4 percent decline nationally. This season's flue-cured tobacco prices have continued to average 5 percent below a year ago, but marketings have picked up sharply in recent weeks and are now running a little ahead of last year. The value of gross sales has therefore risen significantly but is still around 2 percent, or some $27 million, under a year earlier.