August 4, 1993
Economic activity in the Third District appeared to be steady in July, based on reports from business contacts. Manufacturers indicated that shipments were running at a level pace but new orders were falling. Retailers generally reported steady or improving sales although the gains appeared to be easing. Most bankers said loan demand remained flat while a few reported increased lending to middle market companies.
On balance, company officials surveyed for this report expect only slight gains during the rest of this year. Manufacturers anticipate an increase in new orders but they expect employment and capital spending to trend down through the rest of the year. Most merchants forecast only slight improvement in the fall. Bankers generally expect sluggish loan demand to persist due to the reluctance of both businesses and individuals to take on more debt while economic conditions are uncertain and increased taxes are in prospect.
Manufacturing
Third District manufacturers polled in July indicated that activity
remained generally flat, with some signs of softening demand for
their products. While shipments were running at a steady pace, on
balance, firms reporting declines in new and unfilled orders
slightly outnumbered those posting gains. These conditions prevailed
in most major manufacturing sectors of the region; only food
processors, chemical manufacturers, and makers of stone, clay, and
glass products noted some increases in orders. Employment remained
weak; although more than two-thirds of the firms contacted for this
report said they were holding payrolls and hours steady, the number
of companies making cuts exceeded the number adding workers or
extending hours.
Despite lackluster current conditions, area manufacturers expect improvement over the next six months. Nearly half anticipate increases in new orders and shipments while only a relatively small percentage expect declines. There appears to be ample capacity for the expected increase in demand as surveyed firms forecast continuing reductions in employment and scaled back capital spending.
Retail
Third District retailers gave mixed reports for the mid-June to mid-
July period; most said they were even with the year-ago pace or
achieved some increases. Discount stores and apparel and appliance
specialty stores posted gains while sales for department stores were
mostly flat. Merchants said the excessively hot weather of late June
and early July stimulated sales of air conditioners and summer
clothing, but they noted that audio equipment also sold well. Most
of the merchants who were making year-to-year gains said the upward
trend appeared to be easing in late July.
The majority of store officials surveyed for this report expect sales to be seasonally slow until back-to-school shopping begins in late August. Retail executives are retaining their earlier forecasts of a small improvement in sales for this fall compared to last, and they continue to cite low consumer confidence as the factor inhibiting stronger gains.
Auto dealers generally said sales slipped somewhat in July from the strong pace set in the spring. Nevertheless, most expect sales to continue to run above last summer's rate, and they expect sales for all of 1993 to meet or exceed the forecasts they made at the beginning of the year.
Finance
Third District bankers generally indicated that loan demand has been
stagnant in most credit categories although some said they have seen
increased business borrowing in response to extensive business
development efforts. Most of the new borrowing has been by middle
market companies. Bankers said their new customers are borrowing to
finance needed capital equipment. Consumer lending has been
virtually flat in recent weeks, according to bank lending officers
interviewed in late July.
Bankers expect loan demand to remain soft. Most of those contacted for this report said both businesses and individuals appear reluctant to add to outstanding debt while the economic outlook is so uncertain and changes in federal taxation are under consideration.