July 14, 1976
Economic activity in the Third District is still expanding. Retail sales have picked up after a period of softness, and conditions in manufacturing have improved, although the pace of expansion in this sector is slower than last month. Employment in manufacturing is up for the fourth month in a row, while new orders and shipments are down fractionally. At the same time, inventories are basically unchanged from June. For the longer term, both retailers and manufacturers are optimistic. Businessmen indicate that prices continue to rise but no dramatic movements are evident. South Jersey shore resorts report a good season so far and are bullish about the rest of the summer. Bankers indicate that business loan demand is still soft but are not yet ready to make price concessions to generate additional volume.
Manufacturers responding to this month's business outlook survey report that business is better although the improvement is less widespread than in June. Close to one-third of the executives surveyed indicate improvement in overall business conditions compared with two-fifths reporting gains last month. New orders and shipments are down fractionally, and inventories, which declined a bit last month, are reported to be essentially unchanged from that time. On the "plus" side, employment in manufacturing continues to improve. The factory workweek is marginally longer this month, and increases in work forces are reported by 19 percent of the firms polled. This is the fourth month in a row in which job gains have been recorded.
Despite the current weakness in a few indicators, the outlook in manufacturing for the next two quarters is optimistic. Of the businessmen polled, 3 out of 4 project a higher level of economic activity by the beginning of 1977. Specific gains are anticipated in new orders, shipments, and employment while inventories are expected to grow only slightly from present levels. Increases are planned in spending for plant and equipment by one-third of those surveyed—about the same proportion of respondents as last month.
On the price scene, manufacturers report paying and receiving higher prices this month. Better than half of the executives in the current survey report paying more for their inputs, and 1 out of 5 indicates higher prices for outputs. Over the next half year, 86 percent expect to be paying more for their supplies and nearly as many anticipate higher prices for their finished products. In the meantime, retailers report a gradual upward trend in prices with movements characterized as "evolutionary rather than revolutionary."
Area retailers report that sales have picked up after a brief period of softness. Sales gains are put at 10 percent above year-ago levels. Durable goods are reported to be selling well while soft goods are "holding their own." Major appliances, auto accessories, and sporting goods are mentioned as strong sellers. One merchant indicates a good selldown of seasonal items, but another notes excess stocks of seasonal soft goods, especially sportswear. Despite the recent period of weakness, retailers remain optimistic for the rest of this year. As one merchant puts it, "We see no reason to overhaul our optimistic forecast for the second half since the basic factors promoting strong consumer spending are still present." In addition, there are no reported changes in any buying or ordering plans. According to one retailer, "We expect strong demand down the road, so we don't want to overreact to a temporary lull in sales thereby ending up with shortages a few months out."
Contacts at South Jersey shore resorts report that the early part of the summer has been as good as, or better than, the same period last year. Bicentennial visitors, especially to Philadelphia, were expected to spill over to the shore areas and provide an added boost to business, but contacts indicate that this has not yet happened to any significant degree.
The prospects for the rest of this reason are favorable. Inquiries from potential vacationers are reported to be up from last year, and advance bookings for August are reported to be high. For the season as a whole, shore officials feel that with good summer weather business activity will exceed the relatively strong performances of last year. On top of this, any additional business from Bicentennial visitors will be, in one contact's words, "just icing on the cake."
Area bankers continue to report that loan volume is flat. Auto and credit card loans are moving upward at some banks, but business loans are labeled "basically unchanged" by the majority of bankers contacted. Most bankers indicate that current loan volume is below their forecasts made last fall. For example, one executive at a $3 billion bank notes that loans at his bank are running $200 million below the expected level. Despite this weakness, there are no reports on price concessions on business loan terms.
For the longer term, bankers continue to feel that loan volume will pick up gradually in the third quarter and gather momentum in the fourth. However, one banker feels that for most of the second half of 1976 the softness in business loans will continue since prime borrowers can bypass banks by selling their own notes on favorable terms. Another contact feels that banks may step up their efforts if loan demand doesn't improve. "For now, we'd rather sweat it out than get locked into some unprofitable situations by making price concessions. We take this position because we feel that demand will materialize. If it doesn't, however, we'll see much more aggressive action on the part of the banks in the second half of the year to boost loan volume."