October 23, 1985
Overview
Once again, the District economy is giving off mixed signals.
Employment is growing on balance, but losses continue to occur in
several industries. Some of those job losses, however, are related
to special factors and do not reflect the state of business activity
per se. Other measures of activity in the manufacturing sector are
also mixed, but in several cases suggest an end of persistent past
declines, and even some unexpected gains. In particular, the textile
and furniture industries seem likely to have added jobs in recent
weeks in response to some improvement in orders and shipments. The
manufacturing sector may have turned a corner, at least in terms of
no longer representing a drag on overall activity. The retail sector
is generally holding the gains it posted throughout the year, but
further gains have been more modest of late. Construction remains
consistently and uniformly strong, as do sales of houses.
Manufacturing
There are scattered reports of recent gains in some hitherto
steadily declining segments of the manufacturing sector. Notably,
the furniture and textile groups appear to have increased employment
in recent weeks, reversing a protracted decline. On the other hand,
some industries which had formerly been sources of strength may have
given ground recently. In this category would be some types of
building materials, chemicals, and electrical machinery. Also, there
is some seasonal weakness in some sectors. Declines attributable to
current or expected business conditions do not account for all of
this weakness, however. Some chemical plants are restricting
activity because of the fear of leaks, and one major manufacturing
employer is phasing out production in anticipation of relocating the
facility.
On balance, the sector appears to be gaining since reports of improved order and shipment performance outnumber reports of deterioration. For the most part, however, activity levels are reported to be stable. Recent evidence suggests that many manufacturers still find plant and equipment capacity excessive, and that they are reluctant to undertake any expansion effort. Investment projects that are getting under way are productivity enhancing rather than intentional additions to capacity.
Total coal production continues to lag behind last year's record levels, although consumption by electric utilities is well ahead of last year's pace. Lower inventories and increased imports are making up much of the difference. Nonetheless, some areas of the District are currently producing at very high levels.
Consumer Activity
Gains in consumer activity, at least as indicated by retail sales,
have not matched those of August by early indications. Sales remain
strong compared to early in the year, but still fall short of
retailers' expectations. There appears to be little inclination on
the part of dealers to build stocks, although there is little
apparent concern over current inventory levels. Automobile sales
remain an area of considerable strength, and tourist spending, at
least in some areas, seems to have turned in a very good year.
Housing and Construction
The entire private construction sector is still lending substantial
strength to the District economy. Commercial construction already
under way is sufficient to boost the economy for some months to
come. Our impression is that perhaps fewer projects are getting
under way than during most of the last several years, but it is
certainly not clear that that is the case. The housing sector, in
any event, is taking up whatever slack there may be elsewhere. New
construction has shown no signs of slowing, and houses coming on the
market continue to move well, extremely well in some areas.
Agriculture
Crop harvesting in the Fifth District is well under way due to
favorable weather conditions during August and September While yield
levels on most major field crops are not expected to match the
record levels being forecast for the U.S. overall, large harvests
are nevertheless expected. Price levels for field crops, as well as
prices for other agricultural commodities such as tobacco, remain
depressed with little relief expected in the near term. Cash receipt
levels are likely to fall below those of 1984 causing continued
stress to the financial position of District farmers.
The Financial Sector
By and large, responses from the financial institutions suggest
continued across-the-board strength in lending activity, and most
institutions apparently look for continued activity at or slightly
above present levels. One interesting point made by several
respondents concerned the effects of the recent activity in the
automobile markets. Respondents suggest that auto loans at financial
institutions have been exceedingly weak as a result of the financing
arrangements available from dealers and manufacturers in recent
months. As a result, at least in some consumer-oriented
institutions, loan-to-deposit ratios have fallen below desired
levels. In any event, institutions seem confident of their ability
to fund loan demand even at current levels, since deposit flows
continue strong.