July 5, 1979
Responses to our latest Survey of Fifth District Business Conditions suggest only minor changes in the level of activity over the past month. Manufacturers, as a group, apparently experienced very slight declines in the volume of new orders and order backlogs. In addition, inventories were up despite an increase in shipments. Responses concerning employment and weekly hours worked suggest some gains in production are continuing to occur. Increases in prices paid have become even more widespread in recent weeks although employee compensation and prices received do not seem to have followed suit, at least according to this month's survey. The outlook of our respondents has also deteriorated since the last survey. Indications are that aggregate credit demand in the region has softened somewhat since May, but also that there have been no dramatic shifts in the pattern of loan demand for major types of loans. The current truck strike is having an unfavorable impact on the farm income situation. State agriculture officials, especially in the Carolinas, indicate that the strike is resulting in tremendous financial losses for producers of vegetable crops and peaches.
Manufacturers reporting a reduced volume of new orders slightly outnumbered those reporting gains in orders over the past month. Much the same was true of responses concerning changes in backlogs of orders. Nearly two-thirds of all respondents nevertheless continued to experience either unchanged or higher levels of both orders and backlogs. Inventories of materials and finished goods also appear to have risen on balance, but only about one respondent in four views current stocks as excessive. Shipments were apparently up somewhat among those manufacturers surveyed although gains were less widespread than in our previous survey period. There has also been some increase in the incidence of reports that current plant and equipment may be excessive, but such responses continue to represent a relatively small proportion of total responses. There remains virtually no sentiment among respondents for altering current expansion plans.
Approximately one-third of the manufacturing respondents report increased levels of employment over the month and there was also some small increase in the average workweek among responding firms. Although nearly three-fourths of our respondents report paying higher prices last month, the number experiencing gains in employee compensation and prices received actually declined. Expectations of manufacturers have become decidedly more negative in recent weeks. Three-fourths of those surveyed expect the level of business activity nationally to worsen over the remainder of the year and over half expect some worsening in their respective market areas. Only about one-fourth, however, expect conditions for their own firms to decline over the next six months.
In the retail sector there does not seem to be any clearly discernible pattern. In some areas sales have weakened while in others they are holding up surprisingly well. One of our directors reports firm sales activity up until just the last few days, and further feels that this very recent weakening is more consistent with his expectations than the earlier performance. One respondent in the building materials line also reports sales continuing to hold steady. Survey responses also suggest some running down of inventories by retailers, which seems to be consistent with their doubts about whether sales can continue at recent levels.
The demand for commercial and industrial loans appears to have tapered after showing unusual strength earlier this year. In particular, term loans for capital expansion have shown weakness. At the same time, short-term loan demand has increased about with the rate of inflation. Inventory financing has hardly increased at all if measured in terms of physical volume of goods, and reports suggest that the buildup of stocks for the Christmas season will be delayed as retailers hold back to gauge the strength of their markets. Loan demand from construction related businesses has led other sectors due largely to the surge in materials prices. Consumer installment loan outstandings continue to increase while the number of loans made is holding fairly steady. Consumer revolving credit activity, however, continues strong. Several banks have stated that they feel the peak in consumer loan demand has been reached. Mortgage loan demand is strong in most areas, but activity is being limited by a scarcity of funds at savings and loan associations. The volume of new funds received in money market certificate accounts at the thrift institutions has dropped considerably, while losses continue in other categories of time deposits. Liquidity positions are comfortable at most large commercial banks.
District cash farm income was one-third above a year ago during the period January to April, but the current truck strike is having an unfavorable impact at the present time. Because of the lack of trucks, thousands of bushels of perishable vegetables have been left to rot at shipping points. Other crops. ready to be harvested, have been plowed up. Virginia reports indicate that operations of meat packaging plants, dependent on out-of-state shipments, have been significantly affected. And both meat packing plants and some poultry processing plants have been severely affected in moving their products from plant to market. In addition, official reports suggest tighter diesel fuel and gasoline supplies for farm work in some District states. Farm work in some areas is being delayed by late deliveries of fuel or the inability to obtain fuel when needed.