May 13, 1981
Indications from the Third District in May are that business remains sluggish to mixed. In the industrial sector, area manufacturers report a few signs of expansion this month but, for the most part, overall manufacturing activity has remained basically unchanged. Local manufacturers anticipate widespread pick-ups in general activity within the next six months, though. Area retailers report sales up over year-ago figures, rebounding in May from the losses suffered last month owing to a mass transit strike in Philadelphia. Contacts forecast marginal increases in their sale volumes within the next six months but no "boom" in sales is expected. Third District bankers report mixed loan activity in May as C&I loan volume is up but consumer loans are off by as much as 16 percent. Looking ahead to the next six months, business loans are expected to increase slightly and retail loans to remain flat. On the residential construction scene, sales are mixed. New residential sales are running about even with May '80 levels, while resale volumes have dropped as much as 50 percent.
Industrial
Third District manufacturers responding to the May Business Outlook
Survey say that although the local industrial sector showed a few
signs of expansion this month, manufacturing activity remained
basically unchanged, continuing a trend that started in January.
Shipments are up slightly in May and inventories, after six months
of holding steady, have increased marginally this month as well. New
order levels, on the other hand, are about where they were in April.
On the employment front, the situation remains unchanged from last
month with no expansion in either payrolls or the average workweek
reported.
As for the future, survey respondents are predicting widespread pick-ups in general industrial activity within the next six months. New orders and shipments are expected to take off between now and November, and, as production picks-up, area manufacturers plan to make some additions to inventories. Labor stands to gain from such optimism, as survey respondents plan to lengthen the average workweek and hire new employees within the next six months. Increased capital expenditures are also forecast.
Area industrial prices are up again in May as 70 percent of the survey respondents report paying more for raw materials than they did last month, and about one-half say they are charging more for their finished products. Local manufacturers expect inflation to continue over the next six months as nearly 9 out of 10 respondents anticipate higher input costs by November and nearly 8 out of 10 are planning price hikes for the goods they sell.
Retail
Retail sales have bounced back in the Third District in May from the
losses suffered last month owing to a mass transit strike in
Philadelphia. A new contract agreement for the Transport Workers
Union was ratified on April 10, ending a 26-day walkout. According
to area merchants, May sales are doing well compared to year-ago
figures, up 10 to 20 percent. The Easter shopping season was longer
this year and big promotional campaigns helped to bring in more
business. Credit card sales in May are 3 to 4 percent above year-ago
figures, accounting for over one-half of total sales this month. One
major area retail chain is starting to accept VISA and Master
Charge, thus giving their credit sales an added boost. Sales of soft
goods—apparel and small household items—continue to be strong, with
big ticket items remaining sluggish.
Looking ahead to the next six months, local merchants expect the current trend of strong sales to continue but are planning cautiously. Contacts project sales over the period to run only slightly ahead of last year's levels, about 4 to 7 percent. According to one spokesman, the first quarter of 1981 was strong and the second quarter should be better, but no "boom" in sales is expected. Inventories remain in-line with no changes in stock levels planned, as retailers hope to keep inventory-sales ratios healthy.
Financial
Area bankers report mixed loan activity in May. C&I loan volume is
up 1 to 6 percent over year-ago figures, slightly off budget for the
most part. Consumer loans, however, are off as much as 16 percent in
May, generally below budget. Local bankers say they are holding off
pushing consumers loans until the rates come down a bit and their
marketing efforts might prove fruitful. For the longer term, area
bankers say they are not too optimistic about the next six months.
Their forecasts, therefore, are on the conservative side. Commercial
loans are projected to increase slightly, 3 to 4 percent, by
November and consumer loans to remain flat.
Reports of deposit flows in the Third District are mixed. Demand deposit levels range between 4 percent below to 2 percent above year-ago levels, savings and time deposits 4 percent below to 5 percent above May '80 figures. Contacts blame the lackluster performance on the fact that many customers are putting their money into 26-week certificates and money-market funds in order to get a higher return on their money.
Third District bankers are currently quoting a prime rate of 19 percent. Projections of the prime indicate an expected drop in the rate, leaving it about 200 basis points below the current level by November.
Housing
Housing sales in the Third District remain sluggish in May. New
residential sales are running about even with last year's levels,
while resale volumes are off by as much as 50 percent. In downtown
Philadelphia, though, condominiums and townhouses appear to be doing
well. Prices are reported to have been stable over the last few
months, but as construction costs rise many brokers expect the price
of new homes to go up as well. Mortgage money is available if, as
one contact put it, "the borrower is willing to pay the price."
Current mortgage rates are running 15 3/4 to 16 1/2 percent. Area
brokers say if mortgage rates drop to 13 1/2 percent, their sales
would increase by almost one-half of their current volume and starts
would pick up as well.
Mining
The United Mine Workers (TJMW) walked out on March 27 after their
old contract with the Bituminous Coal Operators Association expired.
So far, railroad transportation is the only major industry of the
economy to feel the strike's pinch. Steady declines in coal traffic
have resulted in employee layoffs at Conrail, the highly publicized
Philadelphia-based railroad. Coal represents about one-fifth of
Conrail's total shipments. Since the UMW strike began, Conrail has
furloughed 1,400 workers throughout the system.
In New Jersey, residents could face power blackouts this summer if the UMW strike continues into July. Electric utilities there report having only a 60-day supply of coal remaining. South Jersey's power problems have been compounded by increased tourism in the Atlantic City area, since casino gambling was legalized in 1978. Officials are predicting a record-breaking number of visitors to the shore this summer, requiring a large amount of electrical power. Spokesmen for the utilities say they will face some supply difficulties even if the strike ends soon. To prevent blackouts, utility officials are urging customers to conserve energy and industrial users to cut down on non-essential use.