Beige Book Report: Philadelphia
December 4, 1991
According to most indications, economic activity in the Third District was easing in early November, although there were some positive developments. Manufacturers reported a dip in business and continuing reductions in employment. Retailers noted an upturn in sales, but they said extensive discounting was necessary to prompt the improvement. Bankers said the downward trend in overall loan volume was continuing although they reported a recent increase in residential mortgage lending for both home purchases and refinancings.
Recent developments have not altered the outlook among most contacts in the Third District business community. Manufacturers are still optimistic that business will improve over the next six months. Retailers forecast only slim year-over-year gains in the dollar value of sales for the Christmas shopping season. Several commercial bankers said they believe commercial and industrial lending may pick up by the middle of next year. This represents a more optimistic view for this lending category than the forecasts bankers made earlier this fall. For consumer lending, bankers expect some modest gains as the economy recovers; but they plan to maintain limits on commercial real estate lending.
Manufacturing
Manufacturing activity in the Third District was edging down in
early November, according to reports from industrial firms in the
region. Reports of slightly slower business are common from most
industries. On balance, producers of nondurable goods note some
improvement while producers of durable goods generally are
experiencing weakening conditions. This is especially true among
makers of building products and construction-related goods. While
many manufacturing companies reported steady demand, the number
noting recent drops in shipments exceeded the number posting gains.
On balance, new orders and order backlogs were also declining
slightly. Although more than two-thirds of the firms contacted for
this report indicated that the prices they were receiving for their
products were stable, nearly one-fifth were reducing prices while
only one-tenth were raising prices. Apparently in response to
slackening activity, more firms have been laying off workers and
cutting hours than have been hiring or lengthening the workweek.
Despite the dip in activity in November, most manufacturers in the Third District are optimistic that business will pick up over the next six months. A majority of those polled for this report forecast increases in shipments and orders by next spring. While most intend to hold the line on employment over the period, more than one-fourth plan to add to their work forces.
Retail
Most retailers contacted in mid-November said the pace of sales had
picked up in recent weeks, but they also said that extensive price
reductions were necessary to generate the increased business.
Merchants expect year-to-year comparisons for the month as a whole
to be good, but they point out that the year-ago results were very
poor. Specialty stores appeared to be faring somewhat better than
general merchandisers.
Most of the store executives contacted for this report were holding to their earlier forecasts for the Christmas shopping season despite the recent upturn in sales. These forecasts call for gains in the range of 3 to 5 percent over last year in dollar sales. With most merchants concerned that extensive discounting will have to be maintained through the end of the year, few expect operating profits to improve significantly.
Finance
Reports from Third District bankers in mid-November indicate that
outstanding loan volume continues to slip in most credit categories.
Commercial and industrial loan volume at major Third District banks
in the first week in November was 14 percent below the level at the
start of the year, and bank lending officers generally said the
runoff was continuing as current borrowers pay down debt and demand
for credit from potential customers remains weak. Consumer lending
is also slipping, according to bankers as declining auto loan volume
offsets increases in credit card and home equity lending. Several
bankers noted that, in response to lower mortgage rates, residential
real estate lending had increased in recent weeks, for both purchase
mortgages and refinancings.
Several bankers said that discussions with their business customers led them to believe that commercial and industrial lending will increase near the end of the second quarter of next year as area businesses step up capital spending. For other credit categories, bankers generally see slow growth in consumer lending next year as confidence in a recovery gradually increases, but they expect to maintain limits on commercial real estate lending.