October 11, 1978
Reports from Fifth District businessmen remained basically positive in early October. Results of our latest survey indicate continued expansion of shipments and new orders in the manufacturing sector and of sales in the retail sector. Manufacturers also report month to month increases in backlogs of orders, number of employees, and weekly hours worked. It appears that credit demand in the District continues strong, although there are signs that the composition of demand is changing somewhat. Business lending has recovered from a short slump, and expectations are that such lending will accelerate. Real estate loan demand is healthy but moderating, and consumer installment loan demand is matching its recent strength.
In the manufacturing sector activity remained firm in September as shipments, new orders, and order backlogs all were higher over the month. Better than a quarter of the manufacturers surveyed experienced a pickup in orders while more than one in three expanded shipments. Inventory performance was mixed as stocks of finished goods were down and materials on hand rose slightly. Total inventories remain, on balance, somewhat above desired levels. Our directors generally substantiate this view of inventory positions although one cites instances of tight inventory control having impaired sales performance in some firms. Manufacturers are, by and large, comfortable with their current plant and equipment capacity and there appears to be little sentiment for altering current expansion plans.
Retailers surveyed this month report widespread gains in sales and slight increases in relative sales of big ticket items. Inventories at retail stores have grown in recent weeks but remain only slightly above desired levels. Our directors have noticed little change in retail sales in recent weeks, but several feel that consumers are poised for a fall buying spree once cool weather arrives, Concerning the automobile component of retail sales, Fifth District directors expect fall sales of new models to be only slightly weaker to unchanged from recent levels.
Manufacturers and retailers continue to report increases in prices paid and received. Such increases continue widespread among manufacturers but their incidence among retailers declined slightly over the past month. Manufacturers remain basically pessimistic concerning the six month outlook for the national economy and for their respective local economies. There seems to be no consensus, however, on the outlook for production in individual firms. Retailers participating in our survey expect little or no change in the level of activity nationally, locally, or in their respective firms over the next two quarters.
Commercial and industrial loans by Fifth District banks have exhibited strength in recent weeks, with extensions of large banks concentrated in trade and service industries. Bankers report that sharply higher rates on business loans have not discouraged borrowing. All of our banker directors report that they expect the credit needs of their business customers to be moderate to strong in coming months. Higher mortgage rates and more restrictive lending terms are clearly having an effect on the real estate loan market. Demand for mortgage loans has moderated, although only slightly. Commercial banks appear to be referring greater numbers of prospective mortgage borrowers to thrift institutions.
Liquidity at area banks has been diminished but Fifth District bankers seem to feel comfortable with their liquidity, given the vigorous state of credit demand.
Better grade prices and improved quality have continued to produce all-time high general average prices on most flue-cured tobacco belts in recent weeks. The season average price through September 28 was $134.39 per hundred pounds, 12.5 percent above the comparable period a year ago. Meanwhile, gross sales have been 13 percent higher, with the value of these sales up 28 percent. With weather conditions generally dry during the month of September soil moisture supplies are rated as mostly short to very short throughout much of the District. The dry weather has reduced yield prospects for peanuts, soybeans, and corn and has slowed the pace of the peanut harvest. Pastures have declined and are now in mostly fair to good condition.