October 18, 1988
Moderate expansion in the Third District economy is continuing in October, according to indications from the manufacturing and finance sectors, and there are some signs that the consumer sector is regaining momentum. Manufacturers report ongoing improvement in business is boosting both current shipments and order backlogs. Retailers saw a slight pickup in sales during September that has continued into October. Bankers note strength in business loan demand carrying over from the summer. They also say personal loan growth is accelerating modestly as credit card outstandings are beginning to rise, adding to already healthy demand for other types of personal loans.
Views of the future for the Third District economy are mostly positive. Manufacturers generally foresee further gains, although at a somewhat more modest pace than in recent months. Confidence among retailers is rising slightly in response to the current improvement in sales and they are raising their forecasts for the fourth quarter. Bankers expect more growth in business and consumer lending through the fourth quarter but they anticipate further moderation in the rate at which real estate lending is increasing.
Manufacturing
Area manufacturers are reporting the ninth consecutive month of
rising output in October, according to the Business Outlook Survey.
Nearly 32 percent of the firms participating in the survey say
business has picked up from September levels while only 5 percent
note a drop. Both the durable and nondurable goods sectors are
sharing in this moderate growth.
Nearly all measures of industrial activity are showing some improvement in October. New orders and shipments are up at over 40 percent of the plants in this month's survey, and order backlogs are higher at one-fourth of the firms. While delivery times remain unchanged for most local companies, 15 percent note longer lags on orders in October versus September. Employment also shows continuing strength: 26 percent of the industrial establishments covered by the October survey are adding workers, and 19 percent have extended working hours.
Price increases remain a feature of the area's industrial expansion. Over half of the survey respondents are paying more for inputs in October than they did in September, and nearly one-fourth have raised the prices of their own products. While expectations of further price increases predominate among survey respondents, the percentage anticipating further hikes has moderated somewhat from surveys taken during the summer.
In their overall assessment of the near future, survey participants foresee modest growth; 30 percent expect further increases in business over the next six months while 19 percent anticipate a slowdown. On balance, responses to the survey indicate moderate advances in new orders and shipments over the winter, and marginal gains in employment. With 41 percent of the companies polled in October planning to boost outlays for plant and equipment, capital spending should pick up as well.
Retail Reports from Third District retailers in early October indicate that consumer buying has picked up slightly in recent weeks, and more stores are making year-over-year gains than was the case during the summer. While this growth in sales is noted in most product lines, there are indications that upscale stores are doing somewhat batter than discount and mid-market retailers. Store officials continue to note that labor shortages are hindering staffing efforts ant forcing them to bid up wages.
Merchants are raising their sights a bit for fall and winter sales. While most store officials expect real sales for the fourth quarter to just match or slightly exceed results in the same period last year, this forecast represents a modest increase in confidence compared to earlier expectations. However, retailers do expect promotion efforts and discounting to accelerate as the Christmas shopping season approaches.
Finance Total loan volume at major Third District banks in late September was about 13 percent above the year-ago level and bankers contacted in early October said this rate of increase was being maintained. Commercial and industrial loan demand was healthy, according to bank lending officers; they report stepped-up borrowing by regular customers for working capital needs and for investment in plant and equipment.
Consumer lending, which accelerated during the summer, is still moving up, according to bankers. Demand for personal installment and auto loans continues to grow, and several large banks indicate that credit card outstandings are increasing after holding steady for the past two or three quarters.
The pace of growth in real estate lending, while still healthy, continues to taper off. Bankers note a decrease in loan requests from developers engaged in speculative projects.
Third District bankers expect loan demand to continue to grow at around its current pace at least through the end of the year. Some express concern about funding this growth in assets; while most contacts are satisfied with deposit growth at this time, several expect they will have to increase interest rates on deposits soon in order to attract retail funds to match growing loan demand.