February 9, 1977
The Third District economy is feeling the effects of weather-related problems. Retailers report that sales have been adversely affected, and industrial production and employment are being curtailed. The Third District's survey of manufacturers was starting to point to an improvement in business conditions in that sector along with unchanged levels of employment. However, the survey was conducted prior to the gas shortage, and more recent checks with officials in each of the District's states indicate that layoffs are occurring. Bankers in the region say that current disruptions in economic activity could affect business loan demand to some degree, as well as repayment of loans by small and medium-sized firms. All agree, however, that there is little evidence of this yet.
Absent the gas shortage, manufacturing executives responding to the latest Business Outlook Survey say that business is better than in the previous month. Close to 30 percent of the respondents report improvement while 6 percent indicate a worsening in business conditions. New orders and shipments are higher, and, to some degree, shipments are being made out of inventories. Stock levels are down at more than one-third of the firms sampled. At the same time, employment and the average workweek are unchanged for the second month in a row. In general, this picture holds for both durables and nondurables.
For the longer term, manufacturers look for additional improvement. Almost 9 out of 10 executives surveyed expect a pickup in economic activity over the next two quarters. New orders, shipments, and inventories are projected to increase over the period, and employment prospects are favorable as well. One-half of the respondents plan to hire additional employees and one-third plan to lengthen the average workweek. At the same time, capital expenditures are expected to climb at 50 percent of the firms sampled—up about 10 percentage points from the previous survey.
Price pressures in manufacturing are about the same as last month. Forty percent of the respondents report paying more for their supplies and 14 percent are receiving more for their finished products. Both of these proportions show little change from last month. By August, 9 out of 10 expect to be paying more for their inputs and 8 out of 10 anticipate higher prices for the products they sell.
Employment in the District is suffering from shortages of natural gas and other cold-weather problems. State officials in New Jersey estimate that as of February 4th, 32,000 workers had been laid off statewide as a direct result of shortages of natural gas, including 8,000 in the Third District portion of the state. An additional 6,300 have lost their jobs because of icy conditions, mostly in the fishing industry. Roughly one-half of these layoffs occurred in the Third District. In Pennsylvania, a survey by the state found that as of February 4th, about 160,000 workers statewide had lost their jobs as a direct result of the natural gas shortage. A state official in Delaware reports that an auto assembly plant with 1,700 employees will be closed temporarily because it cannot get parts from another company plant in the Midwest. Natural gas has been curtailed to industrial users in Delaware, and consequent layoffs of roughly 2,000 are scattered among 9 firms. It's reported that many companies in the Third District are trying to alter production processes and shorten the workweek in order to keep their workers employed.
Retailers in the area say that sales have been affected by the severe winter weather, but not in monumental proportions. One merchant, who was looking for January sales to meet or slightly exceed year-ago levels, reports that the last two weeks in the month were "terrible" and indicates that sales were down about 7 percent in real terms. He guesses that part of this was due to limited store hours near the end of the month. Another retailer puts January's loss in real terms at 4 percent. One of the merchants contacted reports that his stores registered mild gains over last January, and notes that he is struggling to keep many items in stock. Other retailers say they are virtually cleaned out of cold-weather merchandise. For the most part, there are no problems in receiving supplies reported. For the immediate future, one merchant expects sales in February to "come on like gangbusters," but the majority of retailers contacted are scaling down their sales forecasts as a result of cold weather, layoffs, and higher home heating bills.
Area bankers report that business loan demand remains essentially flat. One notes that loans to regional customers have been moving up slightly, but is not ready yet to call it a definite trend. A banker in New Jersey notes some heavy borrowing from mortgage loan brokers, but other purely local demand is weak. In general, bankers look for a gradual upturn in business loan demand this year. Only a mild pickup is anticipated through the first half, with more acceleration in the third and fourth quarters.
This outlook could be affected, however, by the current disruptions in economic activity. At one New Jersey bank, credit demand from fuel oil distributors to finance inventory has picked up considerably. Overall, however, bankers feel that the gas shortage could delay the expected upturn in business borrowing. Some indicate that, if the cold weather continues, their small and medium-size customers may have trouble cleaning up their loan payments as fast as planned. However, there is no substantial evidence of any of these potential effects at this time.