February 11, 1976
For the second consecutive month Fifth District manufacturing activity in January apparently showed little further improvement from recent advanced levels. In our latest survey, District manufacturers reported that shipments and the volume of new orders softened somewhat after several relatively strong months. Backlogs of orders and inventories were down slightly in January, but inventories relative to desired levels were higher than in recent months. Survey responses indicate no change in employment from a month earlier, while prices, including employee compensation, advanced across a broad front. Current plant and equipment capacity remains in excess at one-third of the manufacturing concerns surveyed. By contrast, consumer spending apparently remains strong. Retailers surveyed were unanimous in reporting increased sales in January, even after a very strong December. Sales of big-ticket items relative to total sales advanced slightly. Survey respondents remain generally optimistic, as most expect business to improve over the next six months. Over the past month bank credit at large Fifth District banks has fallen sharply, with both loans and investments showing declines.
Responses to our latest survey of manufacturers indicate little further progress toward recovery in the past month. Shipments declined for the first time in nine months, while the volume of new orders dipped for the second straight month. Declines in these areas were slight, but compare with widespread and sizable increases in most recent months. Over one-third of our respondents reported declines in shipments, new orders, and order backlogs. Manufacturers' inventories apparently fell further but more respondents now view current inventory levels as excessive than at any time since September. Reports from most individual industries seem to be consistent with this general description. One exception, however, is the machinery and equipment group, which apparently experienced considerable improvement in the level of business during January.
Employment in manufacturing apparently remained about level in January as did the length of the workweek. Prices continued to rise in most areas, as they have done since early last spring. One-third of the manufacturers feel current plant and equipment capacity is excessive, and almost all respondents view current expansion plans as about right.
In contrast with the manufacturers, District retailers surveyed experienced a continuation of the strong improvement which began in December. All survey respondents reported increased sales in January. Sales of big-ticket items relative to total sales increased somewhat during the month, only the second such increase in over a year. Comments of branch directors substantiate this improvement in retail sales and include mention of such areas as automobile and boat sales as having experienced recent improvement. Despite some increase in inventories at retail, survey results show current levels as about right to too low. Twenty-five percent of the retailers surveyed also view the number and size of their outlets as inadequate. Employment at retailers increased during January as did employee compensation. Prices, paid and received, also advanced, as 75 percent of the retailers report them higher than one month ago.
District businessmen remain generally optimistic, expecting the level of business activity to improve over the next six months. Most survey respondents, both manufacturing and retail, expect improvement nationally, locally, and in their own firms over that period.
At Fifth District banks loan demand continues weak. Consumer lending has been essentially flat, with neither installment lending nor credit card activity reflecting the recent strength in consumer purchases. Business loans continue weak. An indication of the slack in business lending is the current very low level of credit line utilization. One bank reports an all-time low in its credit line usage, 21 percent compared to normal usage of about 42 percent. Credit lines are not, however, being canceled or allowed to expire. Expectations about the future course of business loan demand in the Fifth District are mixed. A large North Carolina bank, for example, anticipates that production and inventory loans will pick up in April, while a large Virginia bank expects no significant rise for at least a year.
Farmers in both the District and the nation indicated in early January that they intended to plant larger acreages of feedgrains and cotton but smaller acreages of soybeans than in 1975. Planned increases in District feedgrain and cotton acreages—6 percent and 30 percent, respectively—are somewhat larger than those indicated nationally. But the planned 8 percent cut in soybean acreage is about the same as that in the nation. Although the nation's total crop output reached a new high last year, 1975 will not be remembered as the best of crop production years in the District. With weather-reduced yields per acre and the total acreage of all principal crops harvested about the same as in 1974, the only crops recording significant production gains over a year earlier were tobacco, soybeans, and sweet potatoes.