September 20, 1983
Overview
The economic expansion continues apace in the Fifth District.
Manufacturing activity generally is still improving, and the effects
are beginning to spread across more industries, notably primary
metals. Retail sales have also made further gains in recent weeks
with big ticket lines still increasing their share of the total. In
the construction sector, housing activity remains strong in most
areas despite some recent slippage in sales. In addition, a
resurgence of commercial and industrial activity seems to be getting
underway, at least in the metropolitan areas. Unemployment seems to
have stabilized somewhat over the past month. Business lending by
District financial institutions has been essentially flat. Principal
areas of concern continue to be the export and farm sectors.
Manufacturing
In the manufacturing sector, shipments, new orders, and order
backlogs continue to make broad month to month gains which are also
continuing to spread across industry groups. Such industries as
primary metals and electrical machinery and equipment have joined
the early leaders of the expansion. Despite this continuation of
rising levels of activity, manufacturing employment gains were
modest over the past month, significantly less than in the previous
few months. The length of the average work week, however, continued
to increase generally.
Manufacturers' inventories particularly of finished goods, continued to decline according to our respondents. There are now scattered reports of shortages of finished goods on band and total stocks are now essentially in line with desired levels. In addition, there are beginning to be reports of inadequate plant and equipment capacity and, in a few cases, of inadequate plans for expansion of that capacity.
Price increases are also becoming more common among manufacturers. Nonetheless, a majority of respondents continue to report stable prices for goods bought and sold. A larger majority continues to report stable employee compensation in terms of average hourly earnings. District manufacturers remain optimistic with a large majority expecting further gains n business activity, nationally, locally, and in their respective markets over the next six months.
Consumer Spending
There is almost no evidence of a loss of momentum in the consumer
sector. Retailers continue to report widespread gains in sales and
further, although modest, increases in relative sales of big ticket
items. It appears that more of the recent gains are occurring in the
non-durable lines which, until recently, had experienced only modest
gains. In addition, there appears to have been some further
inventory accumulation at the retail level over the past month, and
total stocks on hand remain at or above desired levels despite the
continued sales gains. Prices at the retail level continued to hold
essentially flat over the month, although reports of increases in
wages paid were fairly common.
District retailers remain basically optimistic, but their outlook for the next six months has become significantly less ebullient in recent weeks. Although none expects any decline in activity, many apparently feel that the potential gains in activity have, for the most part, been achieved.
Housing and Construction
Residential construction is apparently holding up very well in those
parts of the District that showed recent strength, i.e., most areas.
Furthermore, there is almost no evidence, to date, that it will slow
in the immediate future. It is evident, however, that sales of
residential properties have slowed. Mortgage rates appear to have
stabilized after the run up of mid-summer.
Reports of a resurgence in commercial and industrial, particularly commercial, construction plans and activity have become much more widespread the last few weeks. Several of the District's major metropolitan areas are reporting major projects in various stages. These reports clearly suggest that the commercial construction pipeline is filling up. It is probably too early to tell, however, when the process will become more widespread.
Banking and Finance
Mortgage activity is down somewhat and consumer installment credit
is growing less rapidly than earlier in the summer. Business loan
demand is also soft and, for the most part, is expected to stay that
way. In some quarters, however, lenders are expecting an inventory
buildup and increases in sales generally to begin to pump up loan
demand in the near future.
Nonetheless, as a result of generally soft loan activity competition for consumer deposits like MMDAs has not been particularly aggressive and rates on those deposits have risen only about one- quarter to one-half as far as money rates generally.