April 11, 1979
Responses to our latest survey indicate some further modest improvement in Fifth District business activity. Gains in manufacturing appear spotty, concentrated for the most part among producers of hard goods. Inventory accumulation in the manufacturing sector appears to have picked up in the past two months but remains moderate. Pessimism in the business community appears to be less pervasive than earlier in the year, although expectations for the next six months are still basically negative. The inflation problem continues to be the number one concern among businessmen. Thus far the Easter retail rush appears to be something short of spectacular. Loan demand at banks has picked up in recent weeks but activity in mortgage markets has slowed.
Of manufacturers responding to our latest survey nearly one-third report increases in shipments, new orders, and order backlogs over the past month. Such gains appear more prevalent among producers of primary metals, machinery and equipment, and electrical equipment than among manufacturers at large. On the other hand, textiles and paper producers do not seem to have shared in these recent gains. Employment among manufacturers continues to hold steady as does the length of the work week. Further accumulation of finished goods inventories apparently occurred since the last survey, but, on balance, current stocks have risen only very slightly relative to desired levels. For the most part our directors see little indication of significant inventory accumulation such as that which occurred during 1974. Only two directors see any cause for concern over current inventory developments. One cites heavy buying in anticipation of higher prices and one views heavy accumulation at the retail level as a seasonal development. Manufacturers seem comfortable with current plant and equipment capacity and with current expansion plans.
Our sources of information yield no clear picture of conditions in the retail sector. There are signs that the normal Easter buying spree is underway, but no indication that it has been in anyway spectacular. Several retailers characterize current conditions only as stable. One cites a recent pickup in sales of big ticket items. Sources in the financial sector perceive strength in automobile sales and also in the use of credit cards.
The pervasive pessimism of last winter appears to be dissipating in the face of continued strength in the economy. Expectations among our survey respondents remain basically negative, but it is clear that a number of those respondents feel that prospects have improved in recent weeks. Over one-third of the manufacturers still expect the level of business activity nationally to decline over the next six months, but fewer than one-fourth expect declines in their respective market areas. Furthermore, over one-fourth expect further gains in output in their own firms. Retailers, on balance, foresee little change in the level of activity nationally, locally, or in their individual firms. Several firms expressed concern over specific conditions, inflation, the level of interest rates, the oil situation, and the teamsters' strike, but the basic outlook held by District businessmen can only be said to have improved in recent months.
In the financial sector businesses appear to have become more active bank borrowers and there are signs of renewed demand for installment credit to finance purchases of automobiles. The residential mortgage market, however, continues to reflect slowing activity. Small to medium sized firms seeking working capital credits have contributed to recent increases in commercial bank lending to businesses. Loan demand has been greatest on the part of manufacturers, and strength here has been somewhat offset by weak demand in the trade sector. Commercial banks in the region continue to feel comfortable with their liquidity positions, and thrift institutions have experienced only a moderate slowing in funds inflows following recent change in regulation governing money market certificates.
Fifth District farmers enjoyed a greater improvement in cash farm income in 1978 than did farmers nationwide. Generally good crop production—in contrast with the drought-reduced crop output of 1977—and higher farm prices combined to bolster total cash receipts from farm marketings some 17 percent over year-earlier levels as against an increase of around 15 percent nationally. Receipts from crop marketings, up 19 percent, contributed most to the District increase. By state, greatest improvement in total cash farm income occurred in Virginia and the Carolinas—states hit hardest by the 1977 drought.