November 2, 1994
Economic activity in the Third District moved up at a somewhat faster pace in October than in September, according to business contacts. Manufacturers noted stronger growth and reported higher rates of shipments and new orders. Manufacturers also reported increased hiring, on balance. Retailers generally indicated that the pace of sales picked up in October from the prior month although the increase was modest. Bankers reported a slight pickup in commercial and industrial lending and continued growth in consumer lending. Real estate conditions, however, continued to be described as about steady, although there were some positive reports on home sales.
Forecasts by Third District business contacts reflect current trends. Manufacturers foresee continuing gains, and their plans call for some further hiring. Retailers are optimistic that the pace of sales will continue moving up into the holiday shopping period. Bankers expect consumer lending to remain on an upward track, but they are less confident that business lending will continue to increase. For real estate, the outlook is that home sales should stay at their current pace, but construction activity of all types will remain at a low level.
Manufacturing
Reports from Third District manufacturers in October indicated that
activity had increased significantly from the spring and summer
months. Four out of ten firms polled said shipments and orders were
on the rise in October, and about the same number of firms reported
steady business. Producers of nondurable goods generally indicated
stronger demand for their products than did makers of durable goods,
although manufacturers of metal products and stone, clay, and glass
products reported stronger business as well. Increased demand for
manufactured goods apparently has prompted stepped-up employment. On
balance, area industrial firms added workers and extended working
hours in October. Some firms also reported tightening labor market
conditions for skilled workers.
Looking ahead, Third district manufacturers expect improvement to continue through the winter. Nearly half of the firms contacted expect the upward trend of shipments and orders to continue, and about one-third anticipate steady business. Plans at area plants call for some additional hiring and increases in capital spending over the next six months, although, on balance, the gains are expected to be modest.
Managers at area plants continued to note rising prices in October. Over half of those commenting on prices said input costs were going up, and more than one-fourth said they had raised the prices of the goods they manufacture. There were virtually no reports of price decreases.
Retail
Third District retailers generally reported a pickup in sales in
October compared to September, although for most the gains were
moderate. Merchants said apparel, especially sportswear, and home
furnishings were selling well. Store executives characterized their
inventories as in line with sales.
Although merchants said it is too early to speculate about the level of sales in the upcoming holiday shopping period, the general tenor of opinion is optimistic. Retailers believe that apparel sales will remain healthy and that sales of electronic appliances will increase as the holiday period approaches.
Auto dealers indicated that sales in October were healthy and that the supply shortages that hampered sales of certain models have been largely overcome. They look for a good sales rate to continue through the rest of the year.
Finance
Third District bankers contacted for this report said loan volume
moved up at a slightly faster rate in October than it had in
September. Growth was noted in commercial and industrial lending and
in consumer lending. In general, bankers said the increase in
business lending was modest and competition among banks for
commercial loan customers was shrinking lending margins. Consumer
lending has picked up on the strength of auto financing and greater
use of credit cards and home equity credit lines. Residential
mortgage loan volume was virtually steady.
Looking ahead, bankers expect consumer lending to remain on an upward trend, but they are unsure of the course of business lending. Several said they expect further growth to be slight, and they expect competition to continue putting pressure on margins. Also, several bankers noted that a continuation of the current rate of loan growth may soon require them to step up funding and raise deposit rates.
Real Estate and Construction
Realtors in Philadelphia said home sales continued to be strong in
October, maintaining a trend that got under way in the spring.
Realtors in other parts of the Third District gave mixed reports,
with an overall assessment that sales in October were steady but not
strong. Realtors continued to mention that the supply of homes for
sale was large in relation to the sales rate and selling prices have
been steady. Looking ahead, realtors said consumer confidence seems
high enough to sustain the current rate of sales.
Commercial real estate activity remained subdued in October, as it has been for most of the year, according to contacts. The vacancy rate for office buildings was practically steady in central Philadelphia and down slightly in some suburban office markets. Rents in both the central business district and suburban areas continued to show little change.
Construction activity was flat throughout most of the Third District, according to reports received in October. While a few home builders noted recent increases in demand that they were able to meet, construction activity in total has not been strong, and contacts in the real estate industry see no signs of an upturn.