September 15, 1976
Judging from our latest survey of Fifth District business conditions, the level of activity among manufacturers showed little change in the past month. The level of shipments, in fact, has remained essentially unchanged since June, while the volume of new orders has registered minimal declines in each of the past 3 months. Backlogs of orders and finished goods inventories are down somewhat from July, and stocks of materials are reported to have risen slightly since then. Manufacturing inventories remain somewhat above desired levels as does current plant and equipment capacity. Retailers apparently experienced some improvement in sales during August, but at least one respondent attributes this to heavy price markdowns. Sales of big-ticket items continue to lag relative to total sales. Demand for bank loans remains soft. In the agricultural sector, dry weather for the past several weeks has damaged pastures and most major crops in wide areas of the District.
Survey responses of District manufacturers exhibit much the same pattern as in the past 2 months, suggesting a stable level of shipments, some weakness in the volume of new orders, and a small decline in order backlogs. Some accumulation of materials inventories in August is indicated, but over one-third of the respondents report reduced stocks of finished goods. Thirty-seven percent of the manufacturers still feel current inventory levels are higher than desired. Current plant and equipment capacity remains somewhat above desired levels, but there seems to be little sentiment for altering current expansion plans.
Manufacturing employment continues to rise, although more slowly than in the second quarter. Hours worked per week also increased slightly in August. Prices, including employee compensation, remain under some upward pressure as nearly one-half of the manufacturers report increases. Respondents remain essentially optimistic as most expect further improvement in the level of business activity nationally, locally, and within their respective firms over the next 6 months.
Most of the retailers surveyed report increased sales during the latest month, but sales of big-ticket items failed, once again, to keep pace. Despite this apparent improvement in sales, comments of respondents retain a somewhat negative tone. One respondent attributed sales increases solely to heavy discounts. Another cites a lack of consumer confidence, unemployment, and rising prices as adverse factors.
Inventories at retail apparently grew over the past month and remain above desired levels. Nearly one-third of our respondents, however, view their current number and size of outlets as inadequate. Prices generally continue to rise as three-fourths of the retailers reported paying and nearly as many reported receiving higher prices this month. Most of the retailers responding to the survey expect little or no change in the level of activity, nationally or locally, over the next 6 months, although over one-third expect sales in their own firms to improve over that time period.
There continues to be no indication of any serious problems arising from supply or capacity constraints. In most industries surveyed, there are no problems at all while others are experiencing no worse than minor lengthening of lead times. There are some isolated cases, principally in the area of building materials, where the performance of key suppliers is hampering the operation of individual firms. Such cases are rare; and if there has been any recent change in the outlook of District manufacturers regarding supplies and capacity, it has been toward optimism.
Commercial and industrial loans have shown no signs of recovery in recent weeks, except for the expected seasonal strength from local agriculture related companies. There has been some increase in loans made to durable goods manufacturers, but loans to retailers have been flat and those to wholesalers have declined. More than half the respondents to our August survey of changes in bank lending practices have indicated that they expect moderate recovery in business loan volume in coming months. Consumer loans continue to follow their recent pattern of advance, showing steady if unspectacular increases. Growth in real estate loans has been negligible. Agricultural loans remain strong.
Very poor pasture conditions in Virginia are forcing farmers to step up the sale of livestock and increase early feeding. With a continued upswing in quality and grade prices in recent weeks, the general average price for flue-cured tobacco is now running 14 percent above a year ago. Sales volume has been heavy, and the value of gross sales is up 36 percent. District farm income during the first half of 1976 recorded a 3 percent increase over a year earlier compared with a 14 percent gain nationally.