December 6, 1989
Economic activity in the Third District appears to be just steady overall, according to businesses surveyed in November, although conditions vary among sectors. Manufacturing remains on the downward trend that set in during the summer, although the extent of the decline among area firms may be diminishing. Retailers report that sales are running just level with the year-ago pace, in dollar terms, as the holiday shopping season begins. Bankers note that consumer lending is nearly stagnant; financing of auto purchases has fallen off with the drop in sales, and other categories of personal lending remain sluggish. Business lending is advancing moderately and real estate loan growth is being restrained.
Expectations among Third District businesses are that conditions may improve, but just slightly in the first half of 1990. Managers at area manufacturing plants anticipate an end to the current decline but foresee only marginal gains in the next six months. Retailers expect sales for their fourth quarter (November-January) to run just modestly above the year-ago period. Bankers expect some further gains in commercial and industrial lending but they generally are planning to be very cautious in extending their exposure to commercial real estate. Bankers do not anticipate renewed vigor in consumer loan growth until overall economic growth accelerates.
Manufacturing
Manufacturing activity in the Third District continues to edge down,
according to firms surveyed in early November, as the region's
industrial sector remains on a downward trend that began in July.
However, negative reports from local manufacturers are less
prevalent now than they have been since mid-summer. Most of the
firms reporting slower business are durable goods producers, while
makers of nondurables generally report steady conditions.
Specific measures of industrial activity, while mixed, generally reflect an overall picture of softening business. Although shipments are increasing, new orders are virtually flat; the resulting drop in unfilled orders continues a downward trend that started in June. And while employment is being held steady, on balance, area firms apparently are trimming production in response to the weak orders situation by cutting working hours slightly. Although one-third of the firms contacted recently report that the costs of the goods they purchase continue to rise, most indicate that prices of both inputs and outputs are stable.
As for the future, sentiment among area manufacturers is divided nearly equally among those expecting further slowing, those anticipating steady business, and those predicting some improvement over the next six months; a slight plurality favors the optimistic scenario. On balance, while firms contacted this month expect an upturn in orders and shipments by the spring of next year, they expect order backlogs to continue edging down, and they anticipate some cuts in payrolls, as well.
Retail
Third District retailers contacted in late November described
current dollar sales for the month up to Thanksgiving as flat
compared to the same period last year. Stores specializing in
women's apparel were posting good year-over-year gains, but much of
the apparent improvement is attributed to depressed sales in this
line last year. Although some discount and off-price retailers
achieved what were described as healthy advances over last year's
results for the Thanksgiving weekend, most stores ran just even with
or marginally above their 1988 performance. Retailers said markdowns
were fairly widespread.
Area merchants generally expect modest year-to-year gains in dollar sales for the holiday period and for the fiscal fourth quarter (November-January) as a whole. Although most of the store officials contacted for this report said inventories were in line with sales, many said they were planning promotional efforts to give Christmas sales an early boost rather than waiting for a possible last-minute rush.
Finance
Bankers contacted in November report modest loan growth overall,
with business lending on the rise and consumer lending virtually
flat. Lending officers indicate that commercial and industrial loans
outstanding have been rising moderately and they expect a step-up in
the rate of growth as the year comes to an end. Some banks have
boosted loan commitments recently, and they expect these credit
lines to be drawn down soon.
Consumer lending in the Third District is moving up only sluggishly despite some banks' promotional efforts. Bankers believe the fall- off in auto sales has diminished the demand for credit from individuals in recent weeks; furthermore, some expect overall consumer spending to remain lackluster, holding down growth of personal loan volume.
Area bankers generally indicate that they are continuing to restrict expansion of lending for development and construction. Lending for construction of offices and stores is expected to flatten or even decline as banks grow more cautious, and demand for funds to finance industrial development is expected to diminish in response to the slackness in the manufacturing sector. While some bankers note increased demand for credit from firms involved in infrastructure construction, especially highways, bankers' expectations are that total real estate and construction lending will ease from its recent rapid growth.