November 9, 1977
Overall manufacturing activity in the Fifth District remains relatively stable judging from responses to our latest survey. New orders apparently firmed slightly in the past month and manufacturers' inventories remained essentially unchanged. Manufacturing employment among our respondents was also unchanged although average weekly hours declined somewhat. Prices paid and received by manufacturers, including employee compensation, continued upward. While the respondents still foresee little improvement in the overall level of business activity over the next six months, prospects for their respective firms have apparently picked up since last month. Some isolated cases of production losses due to natural gas curtailments have arisen. One of our respondents in the stone, clay, and glass group and a fertilizer plant, both in North Carolina, have reported such curtailments. Bank credit at large Fifth District banks has grown rapidly in recent weeks, with sustained real estate lending and new strength in business lending accounting for most of the growth. Our latest farm credit survey indicates that farmers, many of whom have suffered from drought damage to crops, are not finding it difficult to get needed credit. Responses to our survey of manufacturers suggest a modest further expansion of shipments in the past month along with a pickup in the volume of new orders. Over forty percent of the manufacturers report a rise in orders. Meanwhile, backlogs of orders were essentially unchanged, as were inventories of both materials and finished goods. Nonetheless, current stocks remain above desired levels at over one-fourth of the firms reporting. Manufacturing employment was stable over the month, but nearly one respondent in five indicates a decline in weekly hours worked. Prices, particularly those. paid by manufacturers continued to rise.
Current plant and equipment is viewed by most respondents as about right, but there remain several who feel it excessive in their individual cases. There are now a few manufacturers, however, who feel current expansion plans should be enlarged. Expectations for the level of business activity over the next six months continue to lack the optimistic tone of a few months ago, although nearly one-third of our respondents look for some pickup in the level of production in their respective firms over that time period.
On balance, the textile industry appears to have experienced a somewhat broader gain in new orders than the other manufacturing groups. Shipments also held up relatively well for this group in October. Also, we received the most favorable reports from the furniture industry in some months. The improvement reported by our furniture industry respondents is also consistent with information recently made available by the industry which indicates a pickup in business beginning in late summer. Responses from the chemicals industry are a mixed bag, while activity among primary metals producers is apparently less buoyant than in recent months.
Scant reports from the retail sector suggest some further improvement in sales and in the relative sales of big ticket items. Inventories at retail remain in line with desired levels. The outlook for business over the next six months remains cautious.
Demand for commercial and industrial loans appears to be quite strong, with the largest increases in such loans occurring in the retail and wholesale trade sectors. There have also been recent gains in borrowings by utilities. Real estate lending continues undiminished. Consumer installment loans, however, have weakened of late. Time and savings deposits of large District banks, net of negotiable CD's, show very little growth. At the same time, private demand deposit balances have continued to increase along the strong upward trend maintained through the year. Acquisitions of negotiable CD's have been large when measured by recent standards.
With depressed farm income levels in many areas of the District, replies to our third quarter farm credit survey reveal that bankers are experiencing a fairly strong demand for farm loans, further deterioration in loan repayment rates, and increased renewals and extensions of existing loans. Supplies of loanable funds at commercial banks are generally ample, however, and regular farm customers apparently are not finding it difficult to get needed credit. Reportedly, numbers of farmers in some areas have qualified for drought disaster loans from the SBA and/or the FmHA, thereby reducing the demand for farm loans at banks.
Also in the agriculture sector, marketings of flue-cured tobacco have been 12 percent under a year ago. Thus, despite higher prices, the value of gross sales for the season has so far been some $65.6 million, or about 6 percent, below last year.