May 6, 1985
Major sectors of the Third District economy are stable or growing in April. Manufacturing activity is holding steady after three months of accelerating growth, while retail sales remain strong after a successful Easter selling season. Loan demand is up at area banks. Sales of new and existing houses are rising, and both residential and commercial construction are increasing.
The outlook for the Third District economy is positive. Manufacturers expect to boost production and employment during the next six months, and retailers forecast higher sales for the second half of 1985 and for the year as a whole. Likewise, area bankers anticipate greater loan demand as economic growth continues. Real estate sales and construction activity are expected to remain strong through the summer.
Manufacturing
After expending at increasingly faster rates for three consecutive
months, manufacturing activity In the Third District levelled off in
April, according to the most recent Business Outlook Survey. Sixty
percent of the April survey respondents said there had been no
change from March in the pace of their operations. The number of
respondents reporting increases in new orders and shipments slightly
exceeded the number reporting decreases, while around 40 percent
reported no change. Inventories also were stable. As for employment,
three out of four survey respondents reported that payrolls and
working hours were holding steady.
Despite the lack of growth in April, the outlook for local manufacturing over the next six months remains fairly positive. Half of the companies participating in the April survey expect Increases in production, new orders, and shipments during the summer. A quarter of those polled plan to hire more workers, and almost one- fifth expect to lengthen the workweek. About 30 percent have scheduled larger expenditures on new plant and equipment during the next six months.
Prices of industrial goods remained flat again in April. Although some survey respondents reported higher prices for their inputs, more than 80 percent of the survey respondents said there had been no change in the prices of the products they buy or sell. Looking ahead, two out of three of the respondents anticipate paying more for raw materials within the next six months, and one out of three expect the prices of their own products to go up during the same period.
Retail
The Third District's strong retail sales of the first two months of
this year continued into March. The trend appears to be extending
through April, although some store managers speculate that delays in
income tax refunds may have interrupted consumer purchases early in
the month. Department store and general merchandise sales for the
first fiscal quarter (February, March, April) are up 5 to 10 percent
above the comparable period in 1984. Retailers say this growth was
assisted by favorable weather and an early Easter holiday. Although
sales growth thus far in 1985 is less than last year, retailers are
basically satisfied, as prices have been steady and virtually all of
the increase represents higher unit sales volume. Inventories at
department stores remain in line with sales.
Retailers are cautiously optimistic about the upcoming spring and summer seasons. Apparel and seasonal goods are selling well, and sales are expected to continue strong through the spring. Sale growth is expected to moderate in late summer and fall. For the year as a whole compared to 1984, retailers forecast increases ranging from 6 to 10 percent.
Finance
Bank lending officers in the Third District report that strong loan
demand reflects a strong economy, despite some indications of a
pause given by national economic measures in the first quarter.
Compared to April 1984, commercial and industrial loan volume is up
between 15 and 20 percent, and commercial real estate and
construction loans are up about 15 percent. Consumer loans are
approximately 35 percent above year-ago levels, partly due to
continuing credit card promotion by local banks. Although area
bankers expect growth to slacken somewhat from its present pace,
they anticipate robust loan demand through the rest of the year.
Lending in all categories in the second half of this year is
expected to be 10 to 15 percent higher than in the second half of
1984.
For Third District bankers, a strong economy and concomitant loan demand imply that short-term interest rates are at or near their lows for the year. Local bank economists believe a slight dip is possible in the prime and federal funds rates before a gradual rise during the balance of the year. The consensus is that rates will be higher by the fall, with the prime rate approaching 12 percent and the federal funds rate hovering around 10 percent by the end of the year.
Real Estate and Construction
Residential real estate agents throughout the Third District report
growing numbers of people shopping for homes, after a brief drop in
March. Sales are rising, and developers and agents believe that
current mortgage rates, which average 13 percent for a 30 year
conventional loan, are consistent with sustained sales at the
present pace. Sales would drop off at rates of 14 percent or more,
and would pick up substantially if rates were to fall to 12 percent
or less, according to agents.
For most areas of the Third District, real estate and construction activity is at or above 1984 levels. Some differences in local growth rates are noted, with those that dipped in 1984 now posting the biggest gains.
Commercial construction continues to thrive. Building agents say the local office vacancy rate remains below the national average and that the market should continue to absorb new space through the rest of the year.