January 27, 1982
Reports from the Third District indicate that business activity in the month of January is down, but hold some hope for improvement by July. Manufacturers report further slippage in the industrial sector, but are optimistic about the future, anticipating a general upswing in manufacturing activity by summer. Retailers say sales are down from a year ago, but write off the slowness to the cold weather. Third District bankers report C&I loan volume up from last January, but consumer loans are off substantially. Contacts in the financial sector are forecasting modest increases in business loan volume as the economy picks up, but disagree on exactly where interest rates are heading.
Industrial
Manufacturers responding to the January Business Outlook Survey
report further decline in area manufacturing activity, extending the
slump in the industrial sector to four months. Thirty-nine percent
of the executives polled indicate deterioration in the business
climate while only 13 percent report improvement. In terms of
specific indicators, new orders are off in January but not by as
much as in November and December. Shipments, on the other hand, have
held steady following two months of decline. Inventories have been
trimmed slightly again in January. As for labor, payrolls continue
to shrink while manufacturers report a further shortening of the
workweek.
The continued slowdown has not put a damper on manufacturers' forecasts, however, as approximately three-quarters of the survey participants anticipate improvement in general industrial activity within the next six months. Over two-thirds of the respondents expect new orders and shipments to take off between now and July, and, as production picks up, manufacturers foresee increases in payrolls along with longer working hours. Survey respondents continue to be cautious, however, and many plan to keep a lid on stock levels. Capital expenditures will be kept to a minimum in coming months as well.
On the inflation front, industrial prices are up again in January but price hikes appear to be softening. Almost two-thirds of the survey participants report stable input costs in January, and nearly three-quarters say they've kept the prices on their finished products the same as in December. Prices are expected to climb over the next six months, though. Close to 8 out of 10 of those polled anticipate paying more for raw materials by July and about 6 out of 10 plan price hikes for the goods they sell.
Retail
The record cold weather that's been holding the Third District in
its grip for several weeks now has put a freeze on area retail sales
as well in January, according to local merchants. Reports of current
sales volume indicate sales running 15 to 25 percent below year-ago
figures, falling far short of retailers' expectations for this
month. Suburban stores appear to be weathering the cold a bit better
as sales are said to be off but to a lesser degree than at downtown
facilities. Of the items being sold, weather-related goods,
particularly heavy winter clothing, are making a better showing this
month than other lines.
Looking ahead, area retailers expect sales to begin gaining momentum by the end of the second quarter, if a recovery gets underway, as they expect, but shopkeepers are planning cautiously. Contacts project sales over the next six months to run only slightly ahead of last year's levels, about 5 percent. Inventories remain in-line with no changes in stock levels planned as local retailers may be waiting for stronger signals on the economy before building inventories.
Finance
Area bankers report mixed loan activity in January. Commercial loan
volume is up 8 to 10 percent over year-ago levels, but activity in
the last two months has dropped off slightly. Consumer loans, on the
other hand, are off as much as 20 percent from January '81 figures
as most area bankers continue to shy away from retail marketing
efforts they feel would be fruitless anyway. As for the future,
Third District bankers expect little loan activity through the rest
of the first quarter, but anticipate some pickup in the second,
although nothing really robust. Projections are for C&I loan volume
to grow by 4 to 10 percent by July, but for consumer loans to remain
flat for the most part, as the recession bottoms out.
Reports of deposit flows indicate that demand deposits are mixed, running 8 percent below to 10 percent above January '81 levels. Local bankers say depositors continue to watch the rates closely waiting to shift their deposits to higher yielding accounts. Time and savings deposits are running 7 percent ahead of year-ago levels and are expected to continue climbing.
Third District bankers are currently quoting a prime rate of 15 3/4 percent. Projections of the prime over the next six months are mixed; some bankers predict a hike in the rate to over 16 percent, while others forecast the rate to drop by 175 to 275 basis points.
Despite aggressive marketing efforts by banks in the last few weeks, response to IRA offerings has been sluggish so far in the Third District. Currently, deposits average between $1,000 and $1,200 with 30 to 50 percent of the deposits representing new money. Local bankers are optimistic, anticipating some pickup in IRA deposits over the next six months with the strongest thrust coming from corporate payroll deductions.
Real Estate
Home sales in the Third District remain weak in January. New
residential sales are virtually at a standstill this month, while
resale volumes are off by as much as 50 percent compared to year-ago
figures. In efforts to bolster sales, many real estate brokers
report dropping prices, about 5 to 15 percent, but mortgage rates of
17 to 18 percent have pretty much shut down the market in any case.
Mortgage money is available if, as one contact put it, "you pay the
piper." Area brokers say if mortgage rates drop to under 14 percent
consumers would be given a psychological boost, and sales would
improve.
On the construction side, activity appears to be mixed. No new starts on detached single homes are reported, although contacts say new groundbreakings for condominiums in the Philadelphia area are picking up.