June 15, 1988
Overview
The Fifth District economy continued to grow in May. Retail sales
increased at about the same pace as in March and April. Tourism was
stronger than usual this spring and is expected to remain high
through the summer. Manufacturing activity increased in May,
although shipments rose less rapidly than earlier in the year.
Exports at major District ports increased faster than imports in
May, as was the case in March and April. Housing remained robust.
Generally, District farmers are enjoying good growing conditions. At
District banks, commercial and industrial loans rose sharply in May,
and real estate and consumer loans also increased.
Manufacturers and retailers expect inflation to rise in the coming months. They also look for improvement in the U.S. trade balance. Most District bankers expect strong to moderate economic growth.
Consumer Spending and Tourism
District retailers responding to our regular mail survey reported
increased activity in the ten business days ended June 3, compared
with the previous ten days. Half of the respondents reported
increases in sales, while only 16 percent reported declines. Twenty-
six percent of the respondents said their inventories declined
compared with 60 percent who said their inventories did not change.
Over 50 percent of the retail respondents expect their sales to increase in the next six months, Retailers look for inventories to decline over the same period.
Most District resorts and hotels contacted by telephone reported spring activity was higher and summer bookings were running well ahead of last year. About one-fourth of our contacts in the tourist business expect the lower foreign exchange value of the dollar to encourage more U.S. vacations and boost their revenues.
Manufacturing
Manufacturing activity expanded further in May, according to our
regular mail survey. New orders, backlogs of orders, employment, and
the length of the workweek increased at about the same pace as in
March, but the rate of increase in shipments apparently slowed.
Forty-seven percent of the respondents reported increased shipments,
down from 54 percent in the previous survey. Reports of reduced
shipments increased to 12 percent in this survey from 10 percent in
the previous survey. Inventories of finished goods were reported
generally unchanged. About one-third of our respondents reported
increased inventories of materials and about one-half percent
reported no change.
Prices in the manufacturing sector continued to rise. Twenty-two percent of the respondents said they had raised the prices of finished products, and 70 percent reported higher prices for raw materials, compared with almost no respondents who reported declines. Most respondents said they expect further price increases in the next six months. One of our contacts said that because of the lower dollar, domestic producers of plastic resins and other petrochemical products are exporting more, which is reducing supplies and raising prices for these materials in the United States.
District manufacturers expect their businesses to expand further in the next six months. About 40 percent of the respondents believe their shipments and new orders will rise, compared with about 15 percent who anticipate declines. The majority of producers do not plan to change their inventory levels in the next six months.
Inflation and Trade Expectations
We asked manufacturers and retailers in the District to indicate
their expectations about rates of increase in U.S. prices, wages,
exports, and imports in the next six months as compared with the
last six months. The results are summarized in the table below.
| Respondents Expecting Rate of Increase to: | |||
Rise |
Slow |
Not Change |
|
| Prices | 40% |
10% |
50% |
| Wages | 23% |
16% |
61% |
| Exports | 56% |
19% |
25% |
| Imports | 9% |
52% |
39% |
One of our manufacturing contacts said that inflation worries were exaggerated. Wages were in check, he said, and only a few agricultural commodity prices had risen recently because of drought reports.
Port Activity
Representatives from the three major District ports—Baltimore,
Hampton Roads (Norfolk), and Charleston—reported moderate increases
in export shipments in May. Import shipments in May were reported
lower at Hampton Roads and Charleston, but higher at Baltimore.
These contacts anticipate further increases in net exports during
the next six months.
Housing
The District housing market remained relatively robust in May
according to a survey of realtors and builders. The pace of new home
sales apparently increased from early spring; none of our contacts
reported overall declines in May, although one-fourth reported
declines in speculative building.
Agriculture
Growing conditions for crops have been excellent over much of the
District. However, some dry spots were reported in the Carolinas and
one contact said soybean planting had come to a halt in the northern
part of South Carolina because of dry weather. Scattered heavy rains
and hail caused some localized crop damage and planting delays in
other parts of the District.
Across the District, farmers are holding large acreages out of production to qualify for government price supports. One crop producer said that so much land was out of production that he could not see any way that farmers nationwide could produce a surplus of soybeans. Higher market prices, however, could cause some of the acreage to be planted late. Livestock producers anticipate lower profit margins this year as feed costs rise.
Financial
Most major District banks contacted in our telephone survey
indicated increased loan activity in May. According to our
respondents, increases in consumer lending were mainly in auto
loans, which respondents attributed to the decline in loans by
automobile finance companies. Commercial, industrial, and real
estate loans grew substantially in the past month according to most
bankers, but some West Virginia respondents reported declines.
The majority of bankers contacted anticipate strong to moderate economic growth in their areas. They expect the continued growth in residential and commercial building to raise loan demand. Most believe interest rates will rise slightly over the next four months.
Small Business
Some financial institutions have reportedly become less willing to
make small commercial loans. According to one report, small
businesses are increasingly using consumer credit for their credit
needs.