March 9, 1977
Our latest survey of Fifth District business conditions, covering the month of February, suggests little lasting negative impact from weather and fuel problems. Manufacturers' shipments rebounded from a relatively weak performance in January and new orders continued to improve. The improvement in orders over the January-February period of bad weather, led to a substantial increase in backlogs of orders and a general improvement in inventory positions. Among the manufacturers surveyed, there is less dissatisfaction with current inventory levels than at any time since May 1976. These conditions have also apparently contributed to a marked improvement in the outlook of our manufacturing respondents, who are now more optimistic, as a group, than at any time in the past several years. Fully three-quarters of the respondents expect business conditions to improve over the next six months. In the past few weeks, it appears that large District banks have experienced little demand for consumer credit but somewhat increased demand for business credits. The flow of funds into banks is not especially strong, but liquidity is high and bankers have become more aggressive in seeking out loans.
Of manufacturers responding to our March survey, more than one-fourth report increases in shipments and over one-third experienced a higher level of new orders last month. Order backlogs rose at 43 percent of the firms surveyed, while finished goods inventories apparently declined slightly. Orders appear to have been especially strong in the chemicals and primary metals industries. Nearly one-third of the respondents continue to view current inventory levels as excessive, but almost one in five now considers them inadequate. These responses suggest the most comfortable inventory position reported in our survey in almost a year.
Employment and weekly hours were down slightly among manufacturing respondents, probably reflecting weather and fuel difficulties, but these effects seem not to have been widespread. In general, prices continued to move up in February, although among District manufacturers increases in employee compensation and prices received were less widespread than they had been during most of 1976. Prices paid by manufacturers, however, continued to move up across a broad front. While one-fourth of our respondents continue to view current plant and equipment capacity as excessive, there has been a slight increase in the number of firms indicating that current expansion plans should be enlarged.
District retailers surveyed report no noticeable change in total sales and a slight relative decline in sales of big ticket items during February. Retail inventories declined, although slightly, for the first time in nearly a year and a half and are now in line with desired levels. Several retailers noted increased interest in promotional and lower to middle priced lines, and are trying to assess the longer term impact of such things as higher fuel prices and weather and fuel related unemployment. Any uncertainty which exists, however, does not seem to be reflected in the retailers' expectations.
In fact, the most distinctive result of this month's survey was a decided jump in both manufacturer and retailer respondents' expectations regarding business activity over the next six months. Three-fourths or more of all the retailers and manufacturers reporting this month expect business conditions nationally, locally, and in their respective firms to improve over that period. This suggests a marked improvement in confidence, which now appears to be at a higher level than at any time in recent months.
Our February 15 survey of changes in bank lending practices shows most banks reporting no significant change in business loan demand. A few banks, however, report moderately stepped up activity and a larger number indicate greater willingness to make fixed rate and term loans and a stronger disposition to compete for commercial business. Much of the success realized by these banks to date appears to have come from regional customers, e.g., the coal mining industry and some manufacturing firms requiring receivables financing. Quite a few banks in this District report easing lending terms, either through lowering rates, or cutting compensating balance requirements. Significantly, a number of banks are lengthening the maturities of term loans in response to customer demand. In addition, several banks are becoming more willing to put single-family mortgage loans on the books.