April 15, 1980
Business conditions in the Fifth District showed further signs of softening over the past month. The weakness now appearing is far from pervasive, but there are fewer and fewer areas of strength remaining. On balance, District manufacturers report declines in shipments, new orders, and order backlogs. Manufacturers' inventories have grown in recent weeks causing some additional concern over current levels. Reports from District retailers were generally negative this month. Most retailers report a fall in total sales, and all respondents experienced a relative decline in sales of big ticket items. According to most Richmond Directors, the availability of suitable labor ranges from average to abnormally tight. Credit market conditions continue to be characterized by moderate expansion and by changing composition of outstanding credit. The only area of strength is in commercial and industrial lending, where borrowing is concentrated among the larger businesses.
Of District manufacturers responding to this month's survey over one-third experienced declines in new orders and order backlogs over the survey period. Shipments were also apparently down, but by much less than orders. Inventories of materials and finished goods were higher. Approximately one-third of all manufacturing respondents now view current stocks as excessive. Employment was essentially unchanged over the month, but there were scattered reductions in the length of the workweek. Current plant and equipment capacity remain essentially in line with desired levels and there is very little sentiment for altering current expansion plans.
In the retail sector reports of weakening activity are more widespread than in manufacturing. Two-thirds of our respondents report sales down over the past month and all respondents report a relative decline in big ticket items. In some areas where sales held steady it was attributed solely to aggressive promotion and price cutting. Despite an overall decline in the level of retail inventories a large majority of respondents now feel that stocks are too high.
Price increases were somewhat less widespread this month than in recent survey periods. Over one-half of our manufacturing respondents report no change in prices received. Twenty percent report no change in prices paid. Among retail respondents prices received and paid, on average, showed little or no change over the month. Respondents' expectations of future activity, however, deteriorated sharply over the past month. Over 90 percent of the manufacturing respondents now expect the level of business activity nationally to worsen over the next six months, and a majority expect a decline in their respective market areas. Similar views prevail among retailers. About half of all respondents, however, expect activity in their own firms to hold steady over that time period.
Richmond Directors, queried as to the ease or difficulty of hiring qualified workers, find availability of labor average to abnormally low. Very few Directors found availability of labor above normal, and then it was primarily unskilled labor. Asked about industries, other than homebuilding and automobiles, which are depressed in their areas, our Directors mentioned several possibilities. Among these were furniture, major appliances, furniture and auto related textile products, building materials, and retail trade. To date, however, effects on these industries have apparently been diffuse.
Business loan growth at large Fifth District banks has been strong so far this Spring, exceeding the substantial increases that occurred in the same period last year. This time, however, it is the larger, national firms that are doing most of the borrowing. Banks report that smaller and medium sized firms are making every possible effort to avoid borrowing at prevailing interest rates. Current borrowing is described as short-tern but not for normal seasonal or working capital requirements. Nondurable goods manufacturers, especially those in food processing and chemicals, are most active. Retailers have also borrowed amounts that are unusually large for this time of year. Finally, municipalities have been heavy borrowers, for example, through revenue anticipation notes.
Installment loan growth continues to be very weak, particularly at larger banks. Auto loans in particular are slack. Area bankers are taking aggressive steps to restrain any further growth in consumer revolving credit. Real estate lending is declining. In particular, the residential mortgage market is very quiet. Area thrift institutions, which continue to suffer severe declines in savings and long-term time deposits, are being very cautious. At current levels of mortgage interest rates, however, demand is very weak anyway.