January 20, 1984
The Third District economy appears to be off to a good start in 1984. Significant gains are reported in the manufacturing industry since early December, and retailers, having recently enjoyed a banner holiday season, report very good January sales. The financial sector, although awaiting a long overdue pickup in commercial loan activity, continues to experience strong retail loan demand.
Third District contacts have a very positive outlook for the first half of 1984. Manufacturers' plans for increasing capital expenditures are at a seven-year high and retailers are forecasting double-digit gains in sales over the first half of 1983. Bankers expect to see a pickup in C&I loan activity and also remain very confident about retail loan demand in 1984.
Manufacturing
Respondents to the January Business Outlook Survey indicate
significant gains in local manufacturing activity from December
levels. Over 48 percent of the manufacturers surveyed report an
increase in overall activity, while only 6 percent indicate a
decline. New orders and shipments have posted gains comparable to
their increases during most of 1983, and unfilled orders have made
their strongest monthly advance since early fall. At the same time,
inventory levels remain steady and marginal gains are reported in
employment.
Manufacturers' outlooks for the first half of 1984 are very positive, as 3 out of 4 survey respondents are forecasting higher levels of activity by July. Highlighting the manufacturing forecast once again are planned capital expenditures; for the first time in seven years, half of the respondents to the survey intend to increase outlays for plant and equipment during the next six months. Widespread increases also are predicted in new orders, shipments, and producers' backlogs, and area businessmen are projecting gains in both inventory levels and employment.
Industrial prices are reported to have risen in January from December levels. About one-third of those polled report higher input prices while one-fourth say they have received higher prices for their finished products. Looking ahead, 82 percent of the manufacturing executives surveyed expect to face higher materials prices six months from now and 65 percent foresee higher prices for finished goods.
Retail
The Third District retail industry enjoyed one of its best holiday
seasons in recent years in 1983 and is currently experiencing very
satisfactory January activity. December sales ranged from 10 percent
to 25 percent higher than those of the previous Christmas season,
and several major retailers report early January volume to be 15
percent better than a year ago. The traditional January home
furnishing promotions and "white sales" are in full swing in the
Third District, with most contacts indicating current activity very
close to expectations. Retail executives also report ideal inventory
conditions over the last six weeks: very few items were in short
supply during the holiday season, yet little was left unsold at the
year's end. Despite the absence of widespread markdowns,
characteristic of early January, the "new" merchandise on store
shelves is selling very well.
Merchants remain confident that the recovery will continue and, consequently, are forecasting sales for the first half of 1984 to exceed those of 1983 by roughly 10 percent. One major retailer anticipates a 20 percent gain over its solid 1983 performance. Inventory plans reflect their optimistic sales forecasts. There appears to be a greater concern over preventing a loss of sales due to short supply than over holding excess merchandise.
Financial
Although Third District bankers generally agree that loan activity
in the retail sector has increased consistently in recent weeks,
they report varying conditions in the commercial and industrial
sector. While most contacts note a 2 percent to 5 percent increase
in C&I volume since early December, one banker, who deals with
relatively small businesses, reports a recent surge in activity. The
same executive also reports a 20 percent increase over last year in
commercial loans outstanding, while year-to-year figures at other
banks are mixed. Retail lending performance, on the other hand,
continues to please Third District financial executives. Led by
credit card lending and home improvement loans, consumer loans are
growing at a 12 percent to 18 percent annual rate in January.
Although bankers have tempered their optimism over C&I activity due to its continued sluggishness, they are generally forecasting solid demand for both commercial and retail loans in 1984. Contacts maintain that a pickup in C&I demand is imminent given that the recovery continues. On the retail side, executives forecast a strong year, especially in automobile and home improvement loans.
The prime rate remains at 11 percent at area banks and most contacts believe that interest rates will remain within 25 to 50 basis points of their current levels throughout 1984. Forecasts of the direction in which rates will move differ among bank executives. Those predicting lower rates cite the fact that 1984 is an election year and also that the recovery shows signs of slowing down; others feel that private credit demands, the deficit, and increasing inflation could push rates slightly higher.