Beige Book Report: Richmond
March 11, 1980
Business activity in the Fifth District remains spotty but does not show any clearly defined trends, either generally or within industries. Manufacturers' new orders continued to weaken slightly over the past month and order backlogs were further reduced, but shipments were somewhat higher and inventories were generally larger than in January. Still, fewer than a third of our respondents find current stocks excessive. Retail sales seem to have advanced in the past month despite some softening in big ticket lines. Inventories at the retail level are essentially unchanged and are generally in line with desired levels. It appears that aggregate credit demand in the District is holding steady, but its composition is changing. Business loan demand is now the primary source of overall strength. Installment loan demand is sagging while mortgage lending practices have tightened considerably. Recent snowstorms inflicted substantial and lasting damage on poultry producing operations in parts of the District.
In the manufacturing sector new orders remain soft and order backlogs continue to be worked down; on the other hand, both shipments and inventories were up somewhat in the past month. Despite the rise in stocks on hand, particularly in finished goods, there was virtually no change in inventories relative to desired levels. Employment and the length of the workweek held essentially stable over the month. An overwhelming majority of manufacturers remain satisfied with current plant and equipment capacity and with current expansion plans.
The recent softness in new orders does not appear to be concentrated in any particular area or industry. Industries such as building materials, paper products, and electrical equipment have shown perhaps the least strength in recent weeks. Textile firms report basically stable orders, while some strength has appeared in the furniture group.
Retail sales continue firm across the District. General merchandise sales are providing much of this overall strength. Big ticket items have weakened, at least in relative terms. Inventories held by retailers were level, on balance, over the month, but apparently declined relative to desired levels. Most retail respondents are comfortable with current stocks.
Price increases remain pervasive and there is little evidence in our survey responses of any easing in this area. A large majority of our directors anticipate price increases, as measured by the CPI, to be at least as great in 1980 as in 1979. Expectations generally are less uniform than in recent months. District manufacturers, on balance, remain deeply pessimistic, although less so than in recent months. Most continue to expect a decline in national business activity over the next six months, but the number expecting declines in their respective firms and market areas is somewhat lower than a month ago. Retailers, on balance, expect little change in the level of activity over the next six months. Although our survey responses suggest that most firms are comfortable with current expansion plans, most of our directors foresee many firms canceling or delaying previously approved investment projects.
Despite sharp increases in the prime lending rate, business loan growth at large Fifth District banks has been strong recently. Factors contributing to this strength in commercial and industrial loans have been a demand for short-term bank loans for interim financing until long-term bond rates drop and demand for tax-free industrial revenue financing. Business loan growth would be even stronger if it were not for some prime rate loans having been paid early as borrowers shift to the commercial paper market as a source of funds. Area banks have become much less willing to make fixed- rate loans of any maturity, and loans for speculative purposes are being discouraged. The demand for and use of loan commitments has not changed to any great degree. Moreover, the consensus among District bankers seems to be that over the near-term business loan demand will continue about as is or possibly weaken moderately.
In the past few weeks personal loans made by large banks have shown almost no growth. This appears to be due to slackening demand rather than limited supply. By and large, District banks remain active in the retail credit area. A number of reports have indicated that credit unions, however, are short of loanable funds. Installment loan rates are up sharply since the most recent discount rate increases and indications are that the increased cost of credit is discouraging consumer borrowing. The rate on home mortgages is also up sharply for those potential borrowers who can find funds. Our recent survey of lending practices at large banks shows half of the respondents less willing to make single-family mortgage loans. Two- thirds are now less willing to lend funds for multi-family properties. Thrift institutions are much less active in the mortgage market, and our directors report that funds availability is tight around the District.
Recent winter storms resulted in severe losses to poultry producers in parts of the District, particularly eastern North Carolina. In one county more than 100 poultry raising operations were destroyed. Stock losses in that area may amount to one-half million broilers and 200,000 turkeys.