May 4, 1987
Summary
Production and retail activity increased in the past month, and
producers and retailers continue to be optimistic about the economic
outlook. In financial institutions, credit card rates are falling
and mortgage activity is stronger although mortgage rates are up
sharply. District farmers are behind in spring planting because of
heavy rains.
Manufacturing
Manufacturing activity increased during the past month according to
our April regional survey. About 40 percent of manufacturers
reported increases in shipments and new orders over last month, as
compared with about 20 percent who reported declines. These results
are about the same as those from our previous survey, suggesting
stable growth. Manufacturers also reported increases in backlogs of
orders, number of employees, and hours worked per week. Inventories
of materials are generally unchanged while inventories of finished
goods are slightly lower. About half of the manufacturers plan to
hold inventories at current levels over the next six months; the
other half are about evenly split between those planning increases
and those planning decreases.
Machinery manufacturers reported an increase in activity, the first such report this year. Their capacity utilization rate has risen 5 percentage points since our previous survey, and now stands at 61 percent. Activity in the region's textile industry apparently declined from a month ago, breaking a series of increases. Activity increased again in the apparel industry.
The percentage of manufacturers reporting price increases continues its trend upward. Forty-four percent of the firms surveyed reported increases in the prices they pay for materials, and 18 percent reported increases in the prices they charge for finished goods. Figures from the previous survey were 35 and 15 percent, respectively.
Looking ahead six months, manufacturers expect business conditions to continue to improve, although they have tempered their optimism somewhat since our previous survey.
District coal production so far this year is about 10 percent below what it was last year, and steam coal producers are concerned about a large potential increase in imported coal.
Consumer Spending
District retail sales rose from March to April. About 60 percent of
the retailers reported increases in sales and about 20 percent
reported decreases—percentages almost identical to those from the
previous survey. Among subgroups of retailers, 80 percent of the
department stores reported increases in sales, while most automobile
dealers reported declines.
In general, retailers are optimistic that business conditions will improve over the next six months. Retailers continue to accumulate inventory, as evidenced by the 42 percent reporting increases in stocks compared with only 8 percent reporting decreases.
Services
District service activity increased in April. Sixty-three percent of
the service firms surveyed reported increases in sales over last
month while 7 percent reported declines. Similarly, 68 percent
expect their sales to increase in the next six months while 15
percent expect declines.
Financial
Several District banks have reduced rates on credit cards. Home
equity loan demand continues to be strong, and financial executives
report that activity in fixed-rate home mortgages has also increased
since mortgage rates jumped in mid-April. In late April, mortgage
interest rates averaged 100 basis points and one discount point
above month earlier levels. Bankers and others close to the
residential real estate market believe that mortgage loan activity
will remain strong for the near future as households rush to close
these loans in expectation of even higher rates to come.
Homebuilders are concerned about mortgage rate increases, but so far
the District housing market remains strong.
Agriculture
Rain has been heavier than usual for this time of year across the
District, which has delayed land preparation and planting. District
farmers expect to plant less acreage in major field crops this year.
Corn acreage will decline by almost 7 percent from a year ago, and
soybean acreage will fall 10 percent. Wheat acreage is expected to
be unchanged. Surveys of peanut and tobacco farmers indicate that
they plan to increase the acreage planted in these crops, but the
high variability of yields in peanuts and tobacco limits the
usefulness of planting intentions as a basis for forecasting
production. In fruit orchards throughout the District, high bloom
and bud counts give promise of good yields this year.