November 12, 1980
Indications from the Third District in November are that business remains mixed. Manufacturers indicate no change in industrial activity in November from last month, but expect a significant upswing six months from now. Employment may be given a boost from this brightened outlook, but inflation is expected to continue with no foreseeable relief. Retail sales are moderately strong this month, owing mostly to retailers' marketing efforts, however, and not underlying strength in the economy. As for the future, local merchants are slightly edgy about the first half of 1981 and, therefore, are planning no changes for inventories. In the financial sector, local bankers report mixed loan activity in November as C&I loan volume is up but consumer loans are down. In the housing sector, sales have dropped off sharply in the last few months as mortgage money has gotten tight. New starts have slowed as contractors and developers are waiting for sales to pick up.
Industrial Activity
Area manufacturers responding to the November Business Outlook
Survey report no change from October in overall business activity.
This could mean that the expansion that appeared to be starting in
September and October has been choked off, although it is still a
little early to draw any hard conclusions. In terms of specific
indicators, both new orders and shipments have dropped marginally in
November, while inventories appear to be growing slightly. On the
employment front, local manufacturers continue to make small cuts in
payrolls and working hours.
Nevertheless, the six-month-ahead outlook is still good according to the survey participants. Over 60 percent of the respondents expect general business activity to pick up between now and May. Both new orders and shipments are expected to increase substantially over the period, and inventory building is planned at more firms than ever before in the survey's history. Labor stands to gain as well from this brightened outlook, as survey respondents plan to lengthen the average workweek and hire new employees by next May. Increased capital outlays are also expected.
Prices are up again in November in the industrial sector. Input costs are higher for about 85 percent of the survey participants and 27 percent report charging more for the goods they sell. Looking ahead, inflation is expected to continue, as 96 percent of the managers surveyed project raw materials costs to increase by May, and nearly 70 percent plan price hikes for their finished goods.
Retail Activity
Area retailers report sales to be moderately strong in November
compared to year-ago levels, which is pretty much in-line with their
expectations. District merchants attribute these gains to marketing
efforts on their part, however, and not to underlying strength in
the economy. Sales of soft goods, particularly apparel and sporting
goods, are doing well while big ticket items remain sluggish.
As for the future, local merchants are uncertain about November sales because Thanksgiving falls late, allowing only three post- holiday Christmas shopping days in the month. A strong Christmas season is expected, though. As a Director of this Bank in the retail business notes, Christmas sales are projected to be good, particularly in the days just before Christmas.
Retail inventories are "in-line" to "a little tight" at this point. Area retailers remain slightly edgy about the first half of 1981, though, and plan no changes for stock levels, hoping to keep inventory-sales ratios healthy.
Financial Activity
Third District bankers report mixed loan activity in November. C&I
loan volume is up 3 to 10 percent over year-ago figures, generally a
little ahead of budget. Consumer loans, on the other hand, are down
by about 4 to 5 percent, but are expected to level off. Looking
ahead to the next six months, area bankers project an increase of
about 5 percent in business loans, while retail loans are expected
to remain flat, as consumers wait to see what the new Reagan
Administration does economy-wise. Some area bankers expect a double-
dip recession, with a final pick-up expected around the second or
third quarter of 1981.
Local banks are currently quoting a prime rate of 15 1/2 percent. They expect the prime to peak shortly, and then to slide back by 200 basis points by mid-1981.
Area deposit flows show little change from recent trends, with deposits running about 2 percent over November '79 levels.
Housing Housing sales in the District have dropped off sharply in the last few months as mortgage money has gotten tight. Sales are reported down 20 to 60 percent below year-ago levels. Prices are reported to have been stable over the last six months, particularly because mortgage rates ranging from 14 1/2 to 15 percent have discouraged many buyers. Rates are expected to drop between 12 and 13 percent in coming months, though, thereby giving sales a boost. In the meantime, contractors and developers are holding off on new groundbreakings until sales pick up.