March 25, 1981
Overview
Fifth District manufacturing activity appears to have stabilized in
recent weeks. New orders are virtually unchanged from the last
survey period and shipments have picked up noticeably. Retail sales,
except for automobiles, are flat to up slightly but sales of big
ticket items have slipped relatively. Manufacturers inventories have
begun to accumulate and there has been some further buildup of
stocks in the retail sector. Manufacturers still find inventory
levels somewhat higher than desired. Residential construction and
sales are almost uniformly weak. Commercial and industrial
construction, however, shows scattered strength. Consumer loan
demand is characterized as weak to moderate. Business loan demand is
up but still below a year ago. Expectations of future activity have
improved decidedly in recent weeks.
Consumer Spending
Retail sales other than automobiles have been essentially flat over
the past month to six weeks. Auto sales, despite some response to
various rebate programs, remain extremely weak. There are also
reports of softness in sales of other consumers durables and
apparel. Consumers are continuing to favor quality merchandise and
are apparently willing to pay the higher prices necessary to get it.
Inventories at the retail level have changed little since our last
survey and remain generally in line with desired levels. Employment
among retailers remains unchanged and there is little sentiment for
increasing the number or size of outlets. Some retailers have become
more restrictive in opening new charge accounts in an attempt to cut
costs.
The Manufacturing Sector
There was a broad increase in shipments by District manufacturers in
the past month. The volume of new orders, however, was virtually
unchanged, on balance, and order backlogs are substantially below
the levels of a month ago. Manufacturing inventories have risen
recently. Additions to stocks have been almost entirely in finished
goods. Nearly half of the manufacturers surveyed still find current
stocks somewhat above desired levels. Most respondents feel current
plant and equipment to be appropriate to present needs, but nearly
one fourth find it in excess. Nonetheless, there is virtually no
sentiment for revising current expansion plans. Manufacturing
employment appears to have declined slightly over the month and the
average work week shrank farther. Prices received by our respondents
have stabilized but prices paid continue to increase broadly.
The recent stability of new orders has prevailed across most industries. No major industry reports any pervasive weakness. There are pockets of strength even in such industries as primary metals and furniture. The softest spots, judging from our survey results, are perhaps the building materials and consumer electronics groups. The weakness recently reported in retail sales of apparel has apparently not reached the manufacturing level to date.
Housing and Construction
There has been little change in the housing sector. Weakness
continues in most parts of the District but there are indications
that inventories of new and previously occupied housing units may
have increased somewhat. There is little expectation now that
residential construction this spring will exceed the levels of a
year ago. Some Richmond directors now feel that it will be difficult
to match year ago levels in their areas. Reports continue to suggest
that nonresidential construction is holding up and continuing to
take up some of the slack in the residential sector.
The Financial Sector
There are indications that business loan demand is picking up, at
least in some areas. By and large, however, it remains below what
would be considered normal levels. Consumer loan demand continues
weak to moderate. Automobile loans have shown some scattered
increases, but from severely depressed levels and remain very slow
by almost any standard. There is little expectation that consumer
loan demand will show significant strength in the immediate future.
There is some sentiment, however, for the view that encouraging
economic news, should it come, could have a disproportionate
positive effect.
The Outlook
Manufacturers responding to our survey have become decidedly more
optimistic since the last survey period. Forty percent of them now
expect the level of business activity, nationally, locally, and in
their respective firms to improve over the next six months. Very few
expect activity to decline over that period. Retailers expect
activity to be at least as good in six months as now. A majority of
our directors expect wage gains to more nearly keep pace with
inflation this year adding some impetus to consumer spending. The
prospects for a coal strike have been depressing activity in some
areas of the District. Recent developments suggesting only a very
brief strike might also have positive effects in the near term.