September 6, 1988
The Third District economy was still on an expansionary trend in late August although the retail sector remained slack. Manufacturing activity continues to increase moderately. Retail sales are flat compared to last year and merchants say the recent trend has been weak. Bank lending is moving up, particularly in business and construction loans. Bankers say personal installment and car loans are expanding but credit card lending is soft. Conditions in Third District recreation areas vary; business at seashore resorts is mostly off from last year while tourism at mountain resorts is up.
The outlook in the Third District business community is mostly positive, except in the retail sector. Manufacturers expect moderate growth to continue and they are planning increases in capital spending and hiring over the next six months. Bankers anticipate sustained loan demand, particularly from businesses, as economic growth continues. Retailers look for slow growth in the final quarter of the year but they do not expect real sales for the period to show any improvement over last year.
Manufacturing
Manufacturing activity in the region continues to expand, according
to the latest Business Outlook Survey. Among firms polled in August,
32 percent reported increasing business while 16 percent indicated
they were operating at a slower pace compared to July. Improvement
is more widespread among producers of nondurable goods than in the
durable goods sector.
Specific measures of industrial activity reflect modest gains. New orders were increasing in August and a pickup in shipments is enabling area firms to reduce inventories marginally. However, order backlogs are unchanged and payrolls at local plants are virtually steady marking the first pause in employment growth—as measured by the survey—in 16 months.
Price pressures continue in the manufacturing sector. Nearly two- thirds of the companies contacted for the August survey reported increases in input costs from July, and almost one-third said they were raising the prices of the products they make. The outlook is for further price increases. Three-fourths of the survey respondents expect to pay more for the goods they purchase over the next six months and more than half plan to charge more for their own products.Looking ahead, area manufacturers expect moderate growth to continue; 34 percent of the August survey participants predict improving business in the next six months while only 9 percent anticipate a slowdown. Overall, respondents expect increases in new orders and shipments and further reductions in inventories. Area firms intend to add workers in the next six months, on balance, and they plan to step up capital spending as well.
Retail
Third District retailers contacted in late August generally
indicated that sales in late July and early August were about level
with the same period last year, in real terms. Merchants say apparel
sales remain weak, but there is some strength in home furnishings,
appliances, and electronic goods. Unusually hot weather was
aggravating the seasonal slowness, according to store officials,
deterring customers from beginning back-to-school shopping.
Area merchants expect sales to improve only slowly through the fall, and they are anticipating a final quarter that will probably just match last year's when measured in constant dollars. In line with a flat projection for sales, retailers are cutting back plans for new store openings.
Finance
Loan volume at major Third District banks was growing at about a 13
percent annual rate in July and early August and bankers contacted
late in the month said this pace appeared to be continuing. Several
banks reported strong demand for commercial and industrial loans,
prompted by increases in capital spending by local businesses as
well as by inventory financing needs. Lending to contractors for
office and flex-space construction has picked up although the growth
of real estate lending overall continues to ease. Bankers say
consumer lending has been strong recently, with car loans and
installment loans moving up, although credit card lending is flat.
Several banks in the Third District have mounted promotional campaigns to raise deposits with 1-2 year maturities, and these banks generally have met their goals. While most bankers contacted in August said funding costs have remained under control, several expressed concern that they will not be able to maintain their current rate of asset growth unless they can boost deposit growth further, and that this will require paying higher rates of interest.
Tourism
Tourism business is mixed in the Third District. New Jersey beach
resorts have suffered from sporadic pollution incidents and a period
of abnormally cold ocean water temperatures. Lodging and other
tourist-related business at these resorts is off around 15 percent
from last year, according to municipal officials and local
merchants. Overall tourist business at Delaware beach resorts is up
around 5 percent from last year, but local merchants say retail
business has not matched the increase in visitors and rental
activity. Pennsylvania mountain resorts in the Third District are
experiencing better than expected business; tourist officials say
gross revenue in vacation-related business is running about 9
percent above the year-ago level.