September 10, 1986
Business conditions are improving somewhat in the Third District although there are some signs that the consumer sector may be backing off slightly. Industrial activity rose marginally from July to August. Retail sales are mixed, with back-to-school merchandise selling well, but the late summer lull holding down sales of either goods. Automobile sales are strong. Total loan volume at major Third District banks is growing at about the same healthy rate as it has during most of the year. However, bankers note a decelerating trend in the growth of consumer lending. Commercial and industrial lending, including construction financing, is described by bankers as showing good growth.
The outlook in the Third District business community is for steady or slightly improved conditions in the near term. On balance, manufacturers foresee some pickup in activity over the next six months. Retailers say the fourth quarter and year as a whole should show moderate gains from last year. Bankers expect continued strength in business lending in the region as long as the national economy does not weaken. However, they expect the growth of consumer lending to taper off further.
Manufacturing
The pace of industrial activity in the Third District has risen
marginally in the last month. Twenty-three percent of the local
manufacturers participating in the August Business Outlook Survey
said they stepped up operations from July, while only 16 percent
indicated slower business and 61 percent reported no change.
Business conditions improved for makers of non-durable goods, but
are essentially stable for durable goods producers.
Specific indicators of manufacturing activity varied in August, either reflecting growth or showing no change. New orders and shipments were up, but the level of unfilled orders was only steady. Employment was stable, with both payrolls and working hours virtually constant. Overall, prices of industrial goods in the region were flat during the month.
Looking ahead, Third District manufacturers are generally optimistic. Forty-nine percent of those contacted for the August survey expect business to pick up over the next six months, and only 23 percent anticipate a slower period ahead. Overall, survey respondents predict gains in new orders and shipments, and a slight increase in order backlogs. However, they expect employment to remain at current levels for the next six months, and plan to maintain capital spending at a steady rate.
Retail
Sales of children's clothes and other back-to-school items were
brisk in August, and as the month came to a close, other goods were
selling at about last year's rate. This represents a pause in the
expansion of retail sales the region has been experiencing, but
store officials say a slowdown at this time of the year is not of
serious concern. They note that inventories are still at acceptable
levels.
Third District merchants say there have been no developments that would cause them to alter the sales forecasts they made earlier in the year. These call for increases ranging up to 10 percent for the fourth quarter, and a similar increase for 1986 as a whole.
Automobile sales are strong, and dealers say the import share of the market appears to be stabilizing. However, dealers say people shopping for cars are concerned about potential changes in the income tax treatment of sales taxes and interest, and may move some purchases planned for 1987 forward to the end of this year. Such borrowing from next year could keep a lid on sales in early 1987.
Finance
Total loan volume outstanding reported by major Third District banks
in early August was approximately 17 percent above the level of
August 1985. Bank lending officers contacted in late August say that
demand for commercial and industrial loans remains strong. Real
estate and construction lending is also brisk in the commercial
sector. Bankers attribute this strength to generally good economic
conditions in the region; but recent indications of a less robust
national economy have prompted some concern for the sustainability
of healthy business conditions locally.
Consumer lending is still growing, but the rate of increase has diminished. The growth of credit card lending in particular has fallen off from its pace earlier in the year. Demand for residential mortgages has also fallen from its peak this spring. Third District bankers note a trend toward slower growth in consumer lending of all types, and they expect this to continue along with a slackening in consumer spending in the months ahead.
Total deposits at large Third District banks in early August were approximately 12 percent above the August 1985 level. Transactions deposits show the most growth currently, as they have throughout the year, and savings deposits show the least. The growth in market-rate deposits has slowed considerably, as interest rates have fallen.