November 12, 1980
There is little indication of any significant changes in the level of business activity in the Fifth District over the past month. In the manufacturing sector shipments and new orders increased, on balance, but only very slightly. Backlogs of orders and inventories declined somewhat. Among retailers there were some gains as total sales and relative sales of big tickets rose slightly. There is little evidence of any broad recovery in consumer durables, however. Employment around the District held steady on balance. Prices continue to rise across a broad front. The view that business activity generally will improve over the next six months gained adherents over the last month.
Consumer Spending
Despite continued resistance to prevailing prices most retailers
surveyed report a pickup in total sales over the month. Apparel
items seem characteristic, with consumers responding
enthusiastically to price cuts. There are also reports of small
gains in sales of big ticket items but overall sales of durables,
particularly furniture, television sets, and radios, continue to
lag. There are isolated reports of increased activity in more
practical appliances such as washing machines and refrigerators.
Auto sales vary widely from area to area, ranging from severely
depressed to moderately robust. Reports on housing sales range from
"no activity" to moderate.
The Manufacturing Sector
Activity in the manufacturing sector, even within individual
industries, has been mixed in recent weeks. On balance, shipments
and the volume of new orders were up narrowly. Backlogs of orders
and inventories are down from last month. Stocks of both materials
and finished goods were worked down leaving manufacturers, as a
group, more comfortable with current levels. Employment and the
length of the average workweek apparently declined slightly during
October. Current plant and equipment capacity remains somewhat above
desired levels.
Economic Outlook
Survey respondents are becoming increasingly optimistic about the
prospects for business activity over the next six months. A majority
of respondents now expect the level of activity nationally and in
their own firms to improve while about half expect improvement in
their respective market areas. Despite this optimism about the
direction of change over the next two quarters there is little
support around the District for the view that the level of activity
will soon reach what would be considered normal levels. Only
moderate gains are expected over the next year.
Agriculture
The serious impact of 1980's drought on farmers' financial and
credit conditions is pointed up more and more as the harvest season
progresses. With farm income significantly lower, loan repayment
rates in the third quarter were down sharply from both the previous
quarter and a year earlier, while renewals or extensions were
substantially higher. Farm loan demand continued to be considerably
weaker than usual. Bank supplies of farm loan funds were up from
both the summer quarter and year-ago levels, however. Interest rates
on farm loans were up slightly, and collateral requirements were
much stiffer.
The Financial Sector
Consumer borrowing has picked up in recent weeks. Year-to-year gains
are now considerably higher than in most recent months. The feeling,
however, is that overall borrowing has not yet reached what would be
considered normal levels. Despite holding recent gains in some
localities mortgage lending activity continues quiet. Many lenders
have become more restrictive in their lending practices in
expectation of slowing deposit growth. Recent interest rate
increases have caused some lenders to fear disintermediation in
favor of money market funds should rates rise much further. For the
most part, however, such effects have not been felt to date. Our
directors in the banking and thrift industries find personal
bankruptcies in their markets rising in line with recent national
patterns.