January 20, 1984
Overview
Fifth District business and economic activity is continuing to
expand across a broad front judging from available evidence. In the
manufacturing sector shipments, new orders, and order backlogs all
made further gains in the latest month as did employment and the
length of the average work week. Inventories were down sharply.
Among retailers, department stores and other general merchandise
dealers still contend that the holiday season provided a spectacular
conclusion to a very good year. Most have reported double digit
gains, December to December, with little of those gains absorbed by
price increases. Housing and construction, also, are holding the
gains of spring and summer. The residential sector is seeing more
speculative building of late in anticipation of a spring resurgence
of sales. Financial institutions have recently experienced moderate
growth in loan demand, largely on the consumer side. With little
deposit growth, however, liquidity is down from the unusually high
levels reached in the fall.
Manufacturing
The recent advance in manufacturing activity apparently continued
through the latest month. Shipments, new orders, and order backlogs
all showed further increases from the previous month. The rate of
increase in new orders seems to have fallen off somewhat, but
seasonal factors in a few industries are largely responsible. Across
the sector employment was up moderately and the average work week
increased slightly. Nonetheless, there was a significant inventory
runoff, particularly of finished goods, but materials were also
down. Most District manufacturers are comfortable with current
inventory levels. For the most part these developments have occurred
consistently across industries, and there are few notable
exceptions. Particular strength has recently appeared in primary
metals and machinery and equipment, however, and seasonal weakness
is most apparent among furniture manufacturers.
Consumer Spending
Reports from District retailers continue to suggest very strong
activity through the end of the year. Many department stores around
the District have reported sales gains of 12 percent to 26 percent,
December 1983 over December 1982. A nationwide chain specializing in
home appliances and consumer electronics and entertainment equipment
reported a year over year gain of 43 percent for the month. One
major exception to this pattern is a large catalog showroom
retailer, which showed a year over year gain of less than 2 percent.
In addition, there are indications that at least some dealers were able to trim promotional activities at year end while holding sales levels and preserving margins. Despite some concern just prior to the holiday selling season, there are few indications that stock outages or inventory shortages presented any generalized problems. With the exceptions of a few lines and an occasional sale item, dealers were apparently able to meet customer demands.
Automobile sales are also reported to have held up surprisingly well over the month. Some import dealers continue to encounter supply problems, selling, as they say, everything they can get their hands on. Otherwise, activity is characterized as robust, but stable, despite a continuing shortage of low mileage used cars.
Housing and Construction
The construction sector also remains quite lively. The commercial
and industrial side continues to make steady month by month gains,
and the level of activity is now significantly improved from earlier
in the year. The principal strength in the industry, however, is
still originating in the residential sector. By nearly all accounts
sales of residential property continue apace, and builders are
trying to get ahead in anticipation of spring sales. For the first
time in a good while there is talk of speculative building going on.
Clearly, industry expectations are for another good year in the
District's housing sector.
Banking and Finance
Loan demand at District financial institutions is still growing
moderately, and growth remains largely on the consumer side.
Nonetheless, as deposit growth has slowed and loan demand has picked
up, however moderately, institutions have moved to restore credit
quality and have become somewhat less liquid. Most institutions seem
to be comfortable with current credit quality and loan to deposit
ratios.
The Outlook
Business people in the District remain, on balance, strongly
optimistic. Retailers seem to think they can hold the gains of 1983
and have another very good year. Manufacturers are looking for
further improvement and most expect progress over at least the next
six months. The emergence of speculative house building attests to
the positive outlook in that sector. One of the few negative notes
comes from the textile industry where there is still much concern
over import competition.