August 6, 1984
Economic activity in the First District continues to expand. Retail respondents report sales increases both over year-ago levels and over plan. Manufacturers also report significant gains over the year. The recovery among manufacturers has been uneven, however; for some firms business is excellent, but for capital goods producers supplying specific traditional industries, the recovery has been slaver than normal. Modest inventory imbalances seem to have developed in both the retail and manufacturing sectors; in some cases, inventories are too large, in others, too small. Price increases for materials and components are still described as moderate. Mortgage lending, which had been very strong, is reported to be falling, and loan demand at some commercial banks has leveled off.
Retail
Retail sales in the First District continued to exceed plan in June
and July. Among those contacted, sales increases for June ranged
from 2 to 29 percent above June last year. July is somewhat
stronger. The small 2 percent increase was attributed to
administrative changes; and the respondent expects a strong pickup
in the fall. Sales increases for both an upscale merchant and a
discount department store were comfortably into double digits.
Several stores reported that sales of home, camp, garden and patio
goods were especially strong. Strength elsewhere reflected
promotional efforts. One product area reported to be weak is
computer games.
Two contacts mentioned inventory problems. One store has been marking down and promoting since the start of the year, but inventories, while declining, remain considerably higher than desired. Another has the opposite problem—slow shipments by suppliers have reduced inventories enough to harm customer service noticeably and reduce sales.
Retail prices are rising only slowly. One merchant attributed a modest 4 percent annual average price increase to three factors: market competition, no jumps in prices from suppliers, and their own ability to keep costs down.
Manufacturing
All manufacturing contacts report business is up over year ago
levels; but the strength of the recovery is uneven. Some firms are
enjoying record sales and earnings while others have seen only
modest improvements since the recession. The diversity in
performance is particularly pronounced in the capital goods sector
and is ascribed to the fact that some major industries are doing
very little investing. For capital goods producers heavily dependent
on sales to the farm equipment, chemicals, oil drilling and mining
industries, the recovery has been disappointing. On the other hand,
for producers less focused on these industries the recovery has been
more vigorous than expected. The electronics industry, in
particular, is said to be booming and exerting a strong demand for
investment goods. Outside the capital goods sector, the demand for
automotive and some housing-related products remains strong. Sales
of chemicals are reported to have improved. Respondents, even those
experiencing large sales gains, are trying to hold down employment
and, in most cases, are limiting hiring to small numbers of
production people in scattered product lines.
Several respondents reported mild inventory imbalances. Inventories are higher than desired for some, a little lower than desired for others. In contrast to some past reports, when respondents stressed their commitment to holding down inventories, statements this month suggest that customer service has risen as a priority.
Price increases for materials and components are said to be modest. Supplies are adequate. Concerns about inflation center around next year's wage settlements in key industries. Also, one executive noted that foreign competition has held down the prices charged by U.S. producers; were the dollar to decline relative to foreign currencies, prices would rise not only for imports but also for many domestically produced goods.
Foreign markets are reported to have improved, at least for subsidiary operations. Business in Canada and Asia seems to be quite good; Europe is mixed and South America has stabilized at a depressed level.
Financial
Mortgage lending by thrifts in the First District had been running
at a record pace until very recently; however, loan volume is now
reported to be drying up. This decline is attributed to high and
stable interest rates. Earlier, interest rate increases were thought
to have stimulated demand as borrowers sought to avoid still higher
rates later. Among thrift institutions, ARMs account for more than
two-thirds of mortgage loans. Commercial banks are less active in
ARMs.
Reports from commercial bank contacts on recent lending experience are mixed, with some reporting continued vigorous growth and others seeing a leveling off.