May 4, 1988
The Third District economy is growing at a moderate pace in April. Manufacturing activity has picked up somewhat during the month and factory payrolls have grown. Retail sales have advanced modestly for department and general merchandise stores, but remain weak at specialty stores. Bank lending to businesses has improved and consumer lending has increased slightly. Deposit growth has fallen below banks' expectations.
Businesses contacted in April have altered the forecasts they made earlier this year, but generally foresee a continuation of current trends. Area manufacturers are optimistic about the next six months—a turnabout from opinions expressed in the last two months—but still see only slow growth ahead. Department store officials have lowered their sales forecasts for the year, but still predict gains, while specialty merchants see no improvement in the near future. Bankers expect continued growth in business lending, slight expansion in consumer credit, and a possible slowdown in the growth of real estate lending by year-end.
Manufacturing
Manufacturing activity in the region is accelerating, according to
the April Business Outlook Survey. Overall, survey respondents
stepped up operations a little more briskly during the month than
they did in the first quarter. More than one-third of the firms
polled in April said business was improving while only one-tenth
indicated slower business compared to March. Conditions are similar
in the nondurables and durables sectors, although durable goods
makers reported a relatively greater increase in shipments for the
month.
Most measures of industrial activity reflect improvement. Shipments are increasing, allowing area plants to work down inventories; but the current rate of shipments is also keeping pace with new orders at local firms, so order backlogs are only steady. The employment situation remains positive: more firms reported hiring workers than reported cutting back payrolls in April, marking a year of continuous growth in jobs at surveyed companies.
Industrial prices continua to rise, according to survey respondents. Among firms contacted in April, 57 percent report higher input charges compared to March, and 30 percent are raising the prices of their own products.
Looking ahead, positive views edged out negative forecasts among area manufacturers in April, reversing the pessimistic balance of opinion that characterized the previous two months. Overall, however, survey respondents remain cautious. They expect some increases in new orders and shipments over the next six months, but they do not anticipate demand improving enough to push up order backlogs. Local firms also plan to boost payrolls slightly, but they will hold capital spending to the current pace.
Retail
Third District retailers report mixed results. Department store
executives contacted in late April said sales in March ran
comfortably above the year-ago period, prompted by an early Easter
this year, and some of that momentum was carrying through April.
General merchandise stores in the mid- and low-priced ranges
indicate similar results. Specialty stores generally report
disappointing performance in sales and profits. Women's apparel
sales are running below a year ago while many stores must meet
higher expenses resulting from recent expansion. Sales of appliances
and electronic goods are flat to down compared to last year.
Retailers say increased prices for imported items in these
categories have hurt sales.
Looking ahead, Third District retailers expect a continuation of current trends. Department store officials are guardedly optimistic; although they see no negative developments on the horizon, they are trimming their sales forecasts from predictions made earlier in the year. Specialty merchants foresee no turnaround in sales immediately ahead and they are focusing on cost-cutting steps to bolster profits. Overall, retailers in the region expect sales growth in 1988 to match or only slightly exceed inflation.
Finance
Total loan volume outstanding at major Third District banks in March
was approximately 9 percent above the year-earlier amount. Bankers
contacted in April reported a slight pickup in the pace of growth.
Commercial and industrial lending is advancing, especially in fixed-
rate loans to middle market companies. Consumer lending is described
as improving, but not strong. Auto leasing and home equity lending
are the best performing categories; credit card loan volume is up
only slightly from last year. Real estate loan growth remains
strong, continuing a trend that has been running for more than a
year in the region.
Bankers expect continued improvement in business lending in the months ahead, reflecting healthy conditions in the manufacturing sector. Although some improvement in consumer loan growth is noted currently, bankers do not expect strong performance in this category. Some reservations are also being expressed about real estate lending: most bank credit officers forecast some softening in this area by the end of the year.
Bankers note a falloff in deposit growth and some banks have boosted rates on short-term certificates or deposit to gain funds; others are tapping the money markets more than they had planned. Lackluster deposit growth is prompting reevaluations of planned asset expansion at some banks.