March 12, 1985
Local industries in the Third District are reporting growth in February. Manufacturing activity has picked up speed, after several slow months; and retailing remains quite strong, contrary to its usual slack performance in February. The financial sector reports some sluggishness in both commercial and consumer loans relative to the beginning of the year, but bankers attribute this to seasonal pressure and note that current lending volume is substantially higher than it was last year at this time.
Overall, the outlook for Third District industries is bright. The majority of manufacturers expect to step up production further within six months. Retailers anticipate that the early Easter will lead into a strong spring and summer selling season. For bankers, the generally healthy economic news signals increased loan demand.
Manufacturing
Local manufacturers responding to this month's Business Outlook
Survey say business is rebounding slightly after several months of
only modest growth. February's survey of industrial activity shows a
definite improvement over January as well as over the 4th quarter of
1984, with one-third of the executives polled reporting expansion of
production in recent weeks. The pickup in production is noted in
both the durables and nondurables sectors. Close to 40 percent of
the survey respondents say both new orders and shipments are turning
in a strong performance this month, while one-third indicate that
inventories have held steady at January levels. Employee payrolls
and working hours are virtually unchanged, as are producers'
backlogs and delivery times.
The six-month outlook for both general industrial activity and specific business indicators remains bright. Over 60 percent of the executives polled anticipate stepping up production by August, while only 10 percent expect to ease off activity. Manufacturers' optimism is reflected in their projections for both new orders and shipments, with well over half expecting further growth in these indicators. Over 40 percent of the survey respondents plan to boost capital expenditures by August.
Current industrial prices are stable again this month. Three out of four manufacturers surveyed say there has been no change in either prices paid for raw materials or in prices received for finished goods. Price hikes are expected in the future, however, as almost three-quarters of those polled anticipate higher input costs and over half plan to charge more for their final products.
Retail
Retailers say the strong sales performance in January has extended
into February; this reverses the normal seasonal slowdown which is
usually attributed to the payoff of consumers' holiday shopping
bills. Extremely mild temperatures in the second half of February
helped to boost sales at area department stores by as much as 14
percent on a year-over year basis. Valentine's Day in particular was
a big success, with exceptionally strong jewelry sales. Promotions
continue to be important in attracting customers. Inventories are
being held in line with sales expectations.
The outlook for retailing in the spring and summer is upbeat. Merchants look for overall first quarter gains of about 10 percent over last year, and expect this year's early Easter to provide further momentum for consumer spending. Department store executives are guardedly optimistic; they continue to forecast further growth, but they do not anticipate making the same "spectacular" year-over- year sales gains posted in 1984.
Finance
Loan demand, in general, has been flat in February. Both wholesale
and retail loans have grown only about 1 percent since the beginning
of the year. Bankers attribute this sluggishness to seasonal
effects. On a year-over-year basis, commercial loans, including
commercial mortgages, are up 10 to 20 percent, and consumer loans
are registering hefty increases, as local banks are still benefiting
from promotional pushes in credit cards and auto loans.
The outlook for loan growth is rosy with lenders expecting a strengthening in demand through mid-year. C&I loans are predicted to run about 5 percent, and consumer loans about 10 percent, over year- ago levels. Continued healthy economic expansion and low inflation are expected to drive borrowing higher, but bankers say growth, especially in the retail areas, is not likely to attain the fast pace they grew accustomed to in the past year.
Local bank economists anticipate some gradual upward pressure on interest rates over the next six months as a result of a healthy economy. The federal funds rate will rise but should not exceed 9 percent, according to bank forecasts. The prime rate, currently at 10.5 percent, will follow suit by rising 25 to 50 basis points by August.