December 9, 1992
Economic activity in the Third District picked up in November according to contacts in major business sectors. Manufacturers noted increases in shipments and new orders although they continue to report declines in employment. Retailers generally indicated that both customer traffic and sales remained on an upward trend, and most of those contacted in late November said business was running at or above the pace they had expected for the month. Third District bankers noted an increase in demand for commercial and industrial loans. They said they continued to originate a large number of residential mortgages but applications for both refinancing and purchase mortgages had dropped sharply in recent weeks.
Looking ahead, most of the Third District business contacts polled for this report anticipate continuing improvement at a modest pace. Manufacturers generally expect the upward trend in orders to remain intact, boosting order backlogs and prompting some increases in employment during the next six months. On the basis of the current pace of sales, retailers have raised their expectations for the Christmas season. Many believe that sales for this holiday period will exceed last year's by a better margin than has been the case in recent years. Some express caution for 1993, however, as they expect potential tax increases, if they are enacted, to dampen consumer spending. Bankers expect both loans and deposits to move upward through next year, although they expect the rate of increase to be slow.
Manufacturing
Manufacturing activity in the Third District picked up in November,
according to reports from area industrial companies. While around
half of those contacted said business was steady, just over one-
third indicated that they had stepped up shipments and were
receiving more new orders compared to the prior month. The gains
appeared to be spread among most of the major industry groups in the
region with the exception of textile producers and manufacturers of
transportation equipment who noted declining shipments and orders.
Despite the indications of improvement Third District manufacturers
report that order backlogs are just steady and that employment has
slipped, on balance. Area industrial companies continue to report
that prices for both inputs and their own products are generally
stable.
Looking ahead, managers at Third District industrial plants are optimistic. More than two-thirds of those contacted for this report expect increases in shipments and orders over the next six months, and nearly one-third anticipate rising order backlogs. While a majority plan to keep employment levels steady, one-quarter indicate they will step up hiring and extend working hours. An equal number are scheduling increases in capital spending for the next six months.
Retail
Most Third District retailers contacted in late November said both
customer traffic and sales were on the rise, and the trend appeared
to continue through Thanksgiving weekend. While some merchants said
sales at their stores were running below the rate for which they had
planned, most indicated that business was picking up to meet or
exceed anticipated levels for this time of the year. The recent
gains have led many Third District merchants to raise their
expectations for the Christmas shopping period. Several said they
believe the year-over-year gains could exceed those of the past
several years. Some retailers expressed caution for 1993, however.
These merchants said sales growth could stall if personal income
taxes are increased next year.
Finance
Reports from major Third District banks in November indicated that
overall loan volume outstanding was moving up slowly, representing
an improvement in loan demand from the situation that has prevailed
throughout most of this year. Bankers said lending was on the
increase in three major credit categories--business, consumer, and
real estate loans.
Several bankers noted that demand for commercial and industrial loans was rising and that banks were competing aggressively for new business loans in the region. While the actual pace of growth was described as slow, bankers said the demand was coming from a broad range of companies, including middle market and small businesses.
Bankers gave mixed reports on consumer lending, but it appeared that consumer loan volume was increasing, on balance, at Third District banks. Several bankers said a significant number of their customers were consolidating installment credit into home equity loans. Nevertheless, these bankers said total consumer-oriented lending was increasing at their institutions.
Most of the bankers contacted for this report said they were continuing to book residential mortgages at a strong pace in November, but most also said that new applications for refinancings and purchase mortgages had fallen sharply.
Looking ahead, the balance of opinion among Third District bankers interviewed for this report was that both loan volume and deposits will grow in 1993, albeit slowly. Most bankers said they expect only modest increases in funding needs in the near future and they anticipate that net interest margins will remain at or only slightly below current levels.