March 18, 1992
Conditions varied across major sectors in the Third District in late February and early March; overall, economic activity appeared to be steady or slightly improved. Most manufacturers reported that business has been stable to somewhat better in recent weeks, and new orders were on the rise. Retailers generally indicated that sales were running a few percent above the levels of last February in dollar terms. Many auto dealers said unit sales picked up in January, and although results were mixed for February, customer traffic continued to be good. Most major banks in the Third District reported continuing declines in loan volume outstanding although residential mortgage activity was generally up. Realtors and home builders said sales were rising, especially for moderately priced houses. Commercial and industrial real estate was characterized as soft.
Looking ahead, Third District business contacts express some optimism. Most manufacturers expect orders and shipments to increase over the next six months. Retailers and auto dealers look for gradual improvement. Bankers said they were receiving more inquiries from potential business borrowers although loan applications had not yet picked up. Realtors foresee further increases in residential activity although the recent upturn in mortgage interest rates has caused some concern that recent gains could be short-lived. Demand for commercial office and retail space is not expected to strengthen soon.
Manufacturing
Manufacturing activity has been running at a steady pace according
to a majority of the industrial firms contacted for this report, and
a good percentage reported some recent improvement. Although
shipments remained stable at about half of the manufacturers polled,
they were up at almost one-third of the firms. Both durable and
nondurable goods producers reported increases in new orders.
Manufacturing employment remained weak, however. While a large
majority of firms reported steady payrolls, a considerable number
are still making reductions.
Most Third District manufacturers expect business to improve over the next six months. A majority of managers at area plants look for an increase in orders and shipments during the spring and summer, and order backlogs are expected to rise. Expectations of improved business are leading area firms to plan higher capital outlays over the next two quarters.
Retail
Reports from Third District retailers indicated that sales in
January exceeded sales in the same month last year. Although the
year-over-year comparison for the month is skewed by the low level
of sales in January 1991, most merchants said that they continued to
make gains in February as well. Although results varied greatly from
store to store, on balance retailers indicated that sales in late
February were running a few percent above the year-ago period in
dollar terms. Most store officials said they continued to be
aggressive in pricing and promotion.
Third District merchants expressed some optimism for the rest of the year. Although most remain cautious in their planning, some store officials said they were reviewing their sales forecasts and might raise them. However, retailers continue to mention the fragile state of consumer confidence, and several said that a stronger sales trend will not take hold until worries about job security diminish.
Third District auto dealers said that unit sales in January were generally above the average for the month in the past few years. Although reports were mixed for February, most dealers reported that customer traffic had remained fairly healthy. On balance, dealers look for gradual improvement during the year, especially if auto loan rates remain at or below current levels.
Finance
Most Third District bankers contacted for this report indicated that
overall loan volume was continuing to edge down. Most large banks in
the district were experiencing declines in business and consumer
installment lending. Some batters said seasonal factors could
account for much of the drop. Residential real estate lending--
including home equity loans, purchase mortgages, and refinancings--
was generally steady or up at banks in the district.
Looking ahead, commercial bank lending officers generally expect the demand for residential mortgages to continue moving up, although a few believe the recent backup in mortgage interest rates could slow the current spurt of activity. As for commercial and industrial lending, most of the Third District bankers surveyed said that loan applications were not on the rise, but they were receiving more inquiries from potential business borrowers.
Real Estate
Reports from some realtors and home builders indicated that home
sales were on the rise. Several builders said customer traffic at
their projects had grown in recent weeks and sales had picked up,
especially for moderately priced houses. Realtors noted increased
interest from potential buyers of existing homes, but they indicated
that sales have been picking up only slowly, especially for higher-
priced homes. According to real estate contacts, the recent behavior
of mortgage interest rates--falling, then moving back up--may spur
some sales in the short run, but could restrain sales if the rates
continue to rise.
Commercial and industrial real estate values remain under downward pressure, according to Third District brokers. They reported that office leasing activity has been fairly healthy, but property values and rents have been soft as excess capacity remains to be absorbed. While new office buildings have been finding tenants, older buildings have been losing tenants. Demand for retail space and industrial buildings was reported to be weak.