March 12, 1985
Overview
While the thrust of economic activity in the Fifth District remains
positive, the evidence collected this month is less consistent than
in other recent months. The manufacturing section in particular was
spotty. Textiles and apparel continued to report many of the soft
spots, but was joined by scattered firms in such diverse industries
as machinery and equipment, furniture, and chemicals. Other sectors,
meanwhile, continue to show robust performance despite, in some
cases, quite adverse weather conditions. Retail sales are making
consistent, occasionally exceptional gains in most areas and in a
wide variety of product lines. Construction of nearly all types is
also lending broad and substantial support to district economic
activity. In the financial sector, loan demand is growing moderately
and deposits seem, more or less, to be keeping pace.
Manufacturing
For the second consecutive month, conditions in the manufacturing
sector of the District appear to have deteriorated. Although the
volume of new orders was little changed in February, manufacturers
report a rather sharp contraction of shipments, and a substantial
working down of order backlogs as well. In addition, there seems to
have been widespread inventory accumulation, particularly of
finished goods, in recent weeks, and there is growing concern that
perhaps current stocks are excessive.
Although manufacturing employment in the District has shown little change of late, there are reports that the average work week may have been shortened. Also, manufacturers continue to report weakness in prices. There are even suggestions that prices may have declined in recent weeks.
Despite the apparent slowing of demand, and an increasing sentiment for retrenchment, District manufacturers actually seem to have become more positive about the outlook. They foresee little change in the level of activity nationally in coming months, but, on balance, expect conditions on their respective markets and firms to improve in that time frame.
Coal production has been disrupted by very bad weather since the first of the year, and is running somewhat below year ago levels. It is likely though that even with good weather, 1984 output would be unmatched at this point. Production is still at relatively high levels by historical standards.
Consumer Activity
Consumer activity is almost universally described as strong around
the District. Sales at department stores, discount houses, and
automobile dealers are particularly good, but remain quite
responsive to price cutting. Generally reports are that sales
strength cuts across nearly all product lines, non-durables,
household durables, and automobiles. For the most part, retailers
used the surge of buying in late 1984 to trim inventories and in the
face of continued sales strength find inventories quite lean, but
not restrictive.
The price discounting that became so prevalent around year end continues generally, although there seems to be a modest trend toward rebuilding margins. It remains to be seen how successful these efforts will be. Retailers as a group seem to be quite optimistic, calling for little change or modest increases in activity in coming months.
Construction
As in recent months, construction activity is quite strong around
the District, including most areas and nearly all types of
construction. In addition, the outlook appears to be for continued
strength in this sector. Housing sales and construction are
described nearly everywhere as moderate or strong, strong in most
areas. Furthermore, evidence from the current housing, market and
from such indicators as building permits are taken to suggest that
this strength is likely to continue for some months.
Similarly, commercial construction is very strong, unprecedented in several metropolitan areas. Office buildings and shopping centers seem to dominate the activity. The outlook for this sector is also positive. Reports suggest that new projects are continuing to come on line at all stages.
Financial Sector
Financial institutions are generally experiencing moderately
expanding loan demand for most types of loans. Sources of funds are
also growing and there is little evidence that any imbalances are
likely to emerge at District institutions. Although credit demands
are expected to continue to expand moderately, there is little
concern that liquidity will be strained, at least over the next
several months.