October 14, 1980
Reports from the Third District indicate that business activity in October is mixed, but that the outlook is improving. Manufacturers report major improvement in industrial conditions over September, and are very optimistic about the next two quarters. New orders, shipments, inventories, and factory employment are all expected to increase between now and April.
Retail sales are still mixed overall in October, with hard goods ahead of most other lines. Merchants are cautious about coming months, and are planning conservatively.
Local bankers report good business loan activity this month, but say retail borrowing is down. Continued strength in commercial loan activity is expected, as interest rates are forecast to drop through the first quarter of 1981.
In the housing sector, sales have leveled off in recent weeks as mortgage money has become tighter. New starts have slowed as well.
Industrial Activity
Respondents to the October Business Outlook Survey report widespread
pickups in industrial activity over last month, the first such
positive sign since May 1979. Supporting the claims of renewed
strength, both new orders and shipments are up significantly from
September, and manufacturers have added to inventories, although
only slightly, for the first time in two years. It appears that
factory employment has been helped by the industrial spurt too. The
widespread payroll cuts of recent months are disappearing, with only
marginal layoffs and hour reductions reported.
As for the future, survey participants continued to be optimistic, projecting a significant upswing in general industrial activity within the next six months. In terms of specific indicators, about half of the survey respondents forecast climbing levels of new orders and shipments between now and April. Plans for meeting the anticipated demand include building stocks, hiring more labor, and lengthening the workweek. Increased capital outlays are also planned at about a third of the firms surveyed.
Industrial prices are up again in October, as 56 percent of the survey participants are paying more for inputs than they did a month ago, and 52 percent report charging more for their finished goods. Looking ahead, inflation is expected to continue as nearly 90 percent project raw material costs to increase by April while 80 percent plan price hikes for the goods they sell.
Retail Activity
Although early October retail sales have rebounded from a sluggish
third quarter at some stores, overall retail activity remains mixed.
Reports of current dollar sales range from 1 percent below to 10
percent above October '79 levels. A Director of this Bank in the
retail business says luxury goods and apparel are making a better
showing than other lines. He also notes that credit sales are
growing, and are expected to continue to do so in coming months.
Local merchants continue to plan cautiously for the next six months, expecting stable but lethargic sales performance in the fourth quarter, one reason being the lack of real strength in consumer disposable income. This seems to reflect the attitude of other area retailers, as they anticipate a steady, no-growth schedule and hope to keep inventory-sales ratios healthy.
Auto dealers in the Third District say new car sales are mixed. Current sales volume reports range from 20 percent below to 25 percent above those just a few months ago, with even the more successful dealers noting some leveling off in recent weeks. Part of the slowdown can be attributed to financing problems, as interest rates have risen and banks have become reluctant to make car loans. Most financing is being done through in-house financing agencies now, such as GMAC and Ford Motor Credit. Area dealers are optimistic about the 1981 lines, however, and expect a pickup in sales, despite higher prices on the new cars.
Financial Activity
Area bankers report mixed activity in October. Commercial loan
volume is up 3 to 19 percent over year-ago figures, slightly above
budget for the most part. Consumer loans, on the other hand, are off
by about 3 to 4 percent. Looking ahead to the next six months,
consumer loan levels are expected to remain flat. Most area bankers
are shying away from marketing efforts to attract retail customers,
for as one spokesman put it, "consumer loans are hard to make a
nickel on." Commercial loans, however, are expected to pick up.
Third District bankers are currently quoting a prime rate of 13 1/2 percent. Projections of the prime indicate a turnabout from the recent trend of rising rates, leaving the rate 350 basis points below its current level by end of first quarter 1981.
Housing
Third District housing appeared healthy in the third quarter, when
mortgage rates fell below 14 percent, but sales have taken a sharp
dip recently as money has become tighter. Current mortgage rates are
running 13 3/4 to 14 1/2 percent, with some 90 percent loans
available at the upper end of this range. Mortgage market conditions
may ease soon, if it becomes legal in Pennsylvania next month to
offer renegotiable rate mortgages, as some thrift institution
officials anticipate.
On the construction side, housing starts have slowed, with builders finishing in-progress projects but holding the line on new ground breakings.