November 4, 1992
Economic conditions in the Third District appeared mixed in early October. Activity in the manufacturing sector eased, according to surveyed firms, while retail and banking contacts reported some improvement. While half of the area manufacturers contacted recently said new orders were running at a steady rate, the number of firms that indicated drops in orders slightly exceeded the number noting gains. Area retailers reported a modest increase in sales, on balance, in the first half of October, continuing an upward trend they noted in September. Auto dealers gave mixed reports, but it appeared that sales were running at a steady rate. Bankers generally reported continuing gains in residential mortgage lending for both refinancings and purchases, and steady to slightly growing consumer lending. Some bankers said commercial and industrial lending had picked up recently.
The outlook among Third District business contacts is modestly positive. Despite recent signs of softness, a majority of the manufacturers polled look for improvement over the winter, and nearly a third plan to step up hiring. Retailers expect the current trend of rising sales to result in a slightly better fourth quarter this year compared to last. Bankers' expectations are muted; most of those queried said loan growth would remain slow in the months ahead.
Manufacturing
Manufacturing activity in the Third District appears to have slipped
somewhat in recent weeks. Of those industrial firms contacted in
early October, the number who reported that they had experienced
some slowing in business in recent weeks slightly exceeded the
number who noted gains. On balance, Third District manufacturers
said new orders were running at a slower rate in October than had
been achieved in September, with drops especially noted among makers
of transportation equipment, nonelectrical machinery, rubber and
plastics, and metal products. Printing firms also reported declines
in orders.
Employment indicators at Third District manufacturing plants also showed some deterioration in October compared to September. Although two-thirds of the firms contacted for this report were keeping employment steady, more companies were cutting back their workweeks and reducing employee levels than were extending hours or hiring more workers.
Despite these recent signs of softening business, most Third District manufacturers believe that the upturn in the region's manufacturing sector that began in the spring of this year is still on course. More than two-thirds expect business to improve over the next six months, and nearly two-thirds forecast increases in new orders for their products. While half indicated they will keep employment at current levels, nearly a third plan to hire more workers over the winter. One-third of the region's manufacturers contacted for this report also plan to step up capital spending while half will maintain such outlays at the current rate.
Retail
Third District retailers contacted in early and mid October
generally indicated that the slight pickup in sales they had
experienced in September was continuing, resulting in year-over-year
gains of a few percentage points for the first half of October, in
dollar terms. These increases, although slight, appeared to extend
to most types of stores and most lines of merchandise. Some
merchants noted that the selling environment remained difficult,
requiring discounting and other promotional efforts. Auto dealers
gave mixed reports, but, on balance, the sales rate in the first
weeks of October appeared to be steady.
Store officials said they were unable to give specific forecasts for the important fourth quarter, but most of those contacted expected sales to exceed the year-ago level slightly. In general, merchants said they were keeping inventories lean and looking for cost savings to bolster profits as they anticipate that growth in sales will be slow. Auto dealers generally believe that sales will just inch up during the balance of the year as 1992 models are cleared out. Some dealers expect stronger growth next spring.
Finance
Total loan volume outstanding at major Third District banks in early
October was slightly above the month-ago level. Most of the banks
contacted for this report indicated that the growth of residential
mortgage lending was continuing. Some indicated that the pace of
refinancings was slackening while purchase mortgage lending was
still moving up at a steady rate. Some bankers also noted that
commercial and industrial loan demand had picked up in recent weeks.
These bankers indicated that companies in a variety of industries
were seeking new credit facilities. Most of the commercial bank
lending officers surveyed said consumer lending at their
institutions was level or moving up very slightly. Most of the gains
appeared to be in home equity loans and credit lines while other
installment loans and credit card lending was flat.
In general, bankers said the outlook for lending is uncertain, and none predicted accelerating growth. Bankers who noted recent gains in commercial and industrial lending said this was an encouraging development, but they were not convinced a sustained upturn had begun. Similarly, most of the bankers contacted this month do not expect strong growth in consumer lending.