Beige Book Report: Philadelphia
March 11, 1980
Reports from the Third District indicate that business activity is mixed this month. The recent decline in manufacturing has continued, with businessmen expecting little or no change over the next six months. Retailers, on the other hand, have had an extremely good month with sales even stronger than predicted. Area bankers are experiencing fairly strong loan volume with little change anticipated through the second quarter. Interest rates are expected to increase in the next month, absent strict credit controls.
Area department stores report surprisingly strong sales this February. Current dollar sales are 8 to 20 percent over February '79 volume, which is much better than most retailers expected. Part of the strength stems from the weather which has been relatively mild this past month compared to the heavy snow storms of last year that kept many people away from the stores. Merchants also say that consumers are not curtailing their spending or their use of credit, but repayments have slowed a bit. Inventories are said to be in good shape. Merchants went into the month bearish so stocks are trim.
Retailers anticipate a slight slowdown in the next few months, but are less worried about the recession than they were at the end of the year. They estimate moderate year-over-year increases of 6 to 7 percent in the next two quarters.
In the financial sector loan volume at area banks is up over year- ago levels, with most of the increase being attributed to commercial loans. Reports of C&I loan volume range from 5 to 18 percent over levels of last March. Consumer loans are also up, but by less. Looking ahead to the next six months, loan volume projections indicate little change between now and September.
Banks in the Third District are currently quoting a prime rate of 17 3/4 percent. Projections of the prime call for an increase in the next month of about 100 basis points, provided that strict credit controls, which all bankers contacted anticipate, are not enacted, followed by large cuts leaving the rate 300 to 400 basis points below its current level by the end of the year.
Area manufacturing activity appears to have dropped another notch this month according to the most recent Business Outlook Survey, pushing the industrial sector further into the slump that began eight months ago. Recent trends in specific indicators of business activity have continued, with new orders down again substantially and shipments off to a lesser degree. Inventory liquidation seems to have slowed, at least temporarily. On the employment front, factory payrolls have been trimmed again (for only the second time since the downturn started) and working hours have been cut as well.
For the longer term, survey respondents are expecting a holding pattern for business over the next six months. Virtually no change in the overall business climate is forecast between now and late summer, nor is any change in new orders or inventory levels predicted. Only a marginal pickup in shipments is anticipated. Such a mediocre outlook doesn't mean bad news for local labor; no further net payroll cuts are planned by respondents. Any necessary cutback in manpower will apparently be effected through a shorter workweek.
Prices are up again in the industrial sector, according to this month's survey. About three-quarters of the manufacturers polled this month report paying higher prices for raw materials than they did last month, and better than half are charging more for their finished products. Looking ahead to August, 87 percent of the respondents expect input costs to go up by late summer, while 70 percent plan price hikes for the goods they sell.