October 14, 1980
Recent contacts with District businesses suggest that business activity in the Fifth District turned up within the past month. Our survey of manufacturers indicates increases in both shipments and new orders in the latest survey period. Also, backlogs continued to be worked off and inventories, while remaining somewhat above desired levels, fell broadly. Responses of retailers also suggest a recent pickup in activity. Little change in employment occurred among respondents over the month. There is no consensus among our directors as to whether a recovery has begun. Most are able to point to particular soft spots they feel will have lingering effects. No consistent pattern seems to have emerged in consumer borrowing. The impression here is that such borrowing is up, perhaps significantly, from earlier in the year but is not yet approaching what would be considered normal levels. Mortgage lending remains slack in most areas. The heaviest general rainfall since early spring arrived during the past two weeks and should prove beneficial to late crops and pastures.
Consumer spending, on balance, appears to have picked up in recent weeks. Retail survey respondents report increased total sales in the past month and indicate that big ticket items have about kept pace. Once again there are reports of consumers buying to beat price increases. With unemployment rates down sharply from their peaks in some District states, consumer confidence may be re-emerging. A number of reports, principally from bankers, concern a short-lived surge in auto sales in early September. Such sales have apparently slacked off considerably in the past two weeks, however.
There is no evidence of any significant change in residential construction or sales in the past month. Construction is well up from earlier in the year, but hardly buoyant. Sales and the requisite mortgage lending continue spotty.
Manufacturers in the District continued to work down inventories in September. Stocks of both materials and finished goods fell on balance, but were little changed relative to desired levels. Most respondents are comfortable with current stocks. Retailers experienced further inventory accumulation over the month, but find present levels appropriate. Manufacturers, by and large, also feel current plant and equipment capacity is about right. The number and size of retail outlets is also seen as appropriate to present and anticipated circumstances.
Expectations of the future level of business activity continued to rise over the month. Over one-third of the manufacturers surveyed expect business conditions nationally, locally, and in their respective firms to improve over the next six months. Only about one in six expects the level of activity to fall over that period. Sixty percent of the retailers responding expect conditions to improve.
All of our directors from the banking industry feel there has been a moderate recent resurgence in consumer loan demand in their areas. Other bankers contacted also perceive a pick-up, but nearly everyone stresses the word moderate. In several areas auto loans accounted for much of the new demand, but there is some feeling that this activity has subsided in the past two weeks. There are also isolated reports of moderate increases in demand for home improvement and debt consolidation loans. One bank calls recent activity in home improvement loans strong. Bankers contacted are unable to evaluate the relative effects of recent changes in credit market conditions and the auto model year-end in the recent swings in auto loan demand. There is some concern that prices and discount schedules on new American cars will prove unpleasant surprises for potential customers. There is also scattered optimism about sales of 1981 models, however. Residential mortgage activity remains generally slack. Where recent improvement is noted it was from extremely low levels. In some instances the recent changes in credit market conditions have had a negative effect, but this has not been universally the case. Some bankers see evidence that it has provided an incentive for consumers to try to lock in existing rates.
District agriculture continues to suffer from the effects of last summer's drought, although recent rains should help pastures and late crops. Production prospects for the District's major money crops are pessimistic, suggesting a further decline in farm income from crop marketings as the harvest progresses.