September 13, 1978
The level of business activity in the Fifth District was little changed over the past month, but most areas of activity can still be characterized as firm. The volume of new orders received by District manufacturers was essentially unchanged, but shipments continued to expand and backlogs of orders were up slightly. Retail sales gained broadly, with relative sales of big ticket items registering a slight increase over the month. Retailers continue to experience widespread price increases, while some manufacturers apparently experienced some relief in this area in recent weeks. Business loan demand has moderated substantially in recent weeks, but area bankers expect demand to strengthen in the fourth quarter.
Results of our survey of manufacturers are generally positive, suggesting continuing expansion at a moderate pace. New orders changed little over the summer, but remain at the level reached during a burst of growth last spring and backlogs are large. Shipments continue to expand at a good pace. Stocks of materials and finished goods apparently declined slightly in August and although one-third of our respondents view current levels as excessive, recent performance of inventories suggests they remain well within manageable limits. Manufacturers' employment and weekly hours worked both continued to expand during August. Manufacturers' responses suggest some improvement in the price situation. Reports of price increases were less widespread in our latest survey than in recent months and there were scattered reports of declines in prices received.
A strike against a principal coal carrying railroad is depressing coal output and employment in southern West Virginia and southwest Virginia. The impact of the strike on coal output has been difficult to assess, but production remains well below the pre-vacation second quarter level. It has been estimated that from 20,000 to 25,000 miners have been idled as a direct result of the lack of transportation for mined coal. There is no evidence to date, however, of coal shortages developing within the District.
Survey responses of retailers suggest continued strength in sales as well as a recent pickup in relative sales of big ticket items. Reports from our directors, however, suggest that sales in some parts of the District are not as strong as they were in early summer. Retailers responding to our survey report increases in employment, some further inventory accumulation, and widespread price advances during the past month.
A majority of manufacturers participating in our survey continues to hold to the view that business conditions, nationally, will turn down within six months. A sizable number also expects some decline in activity in their respective market areas although some are more optimistic concerning the outlook for their own firms. Retailers generally expect little change in the level of activity through the first quarter of 1979, and a majority of our directors share this view.
Commercial and industrial loans have been flat over the past several weeks. The heavy loan demand of late spring and early summer, especially demand for intermediate and long-term loans, has moderated substantially. This is true of virtually every industrial classification, including both durable and nondurable goods manufacturers and the retail trade sector. Bankers are expecting demand to strengthen in the coming quarter, however. Bankers have also been looking for signs of a turnaround in the unusually strong consumer installment loan demand but these signs have not yet materialized. Automobile sales continue to explain the strong installment loan demand and there is some feeling that Christmas sales will help sustain high levels of consumer lending. Second mortgage loans are a moderately important form of consumer financing in some areas, but these loans do not appear to be a significant element in supporting current consumer expenditures.
Residential construction activity is healthy and banks are not reluctant to finance speculative housing projects. Builders seem to be doing a good job of gauging their own markets and banks are apparently not fearful of a sharp reduction in the demand for new homes. Reports of tighter mortgage markets, however, are increasing. Thrift institutions in the District of Columbia and Maryland, for example, have not experienced significant deposit increases recently.
District farmers' cash receipts from farm marketings have continued to improve over last year's level, recording a 5 percent gain during the first half of the year. Further improvement in District farm income can be expected as the flue-cured tobacco marketing season progresses. With the season's sales volume through August 31 heavy and prices averaging 20 percent above a year ago, the value of gross sales is up some 47 percent over that in the same period last year. Harvesting of fall crops has begun and is moving at a fairly rapid pace in southern areas of the District. Crop prospects generally range from fair to good, while pastures are in fair to excellent condition.