January 18, 1995
Reports from Third District business contacts in early January suggested that economic activity was continuing on an upward path, but the rate of growth had eased somewhat from the pace set in the fourth quarter of last year. On balance, manufacturers reported increases in orders and shipments, but the gains were not as widespread in January as they had been in December. Retailers gave mixed reports for the Christmas shopping period. Sales of consumer electronic goods were up strongly from the prior year, but apparel sales were below expectations, leading to widespread discounting to clear out inventories in the weeks after Christmas. Auto dealers said sales slowed seasonally in December, but the overall trend continued to be up, with strong demand for certain models leading to price increases and waiting periods for buyers. Bankers generally indicated that lending continued to move up moderately as the new year began, with business and credit card lending being the strongest categories of credit.
Forecasts for the new year in the Third District are generally positive, although guarded. Manufacturers expect activity to continue to rise, but they anticipate just steady employment over the next six months. Auto dealers expect unit sales in 1995 to exceed those in 1994, but other retailers say it is difficult to make a forecast for the year at this time. Bankers expect some continued growth in lending in the months ahead, but some believe loan growth may taper off in the second half.
Manufacturing
Reports from Third District manufacturers in early January indicated
that industrial activity continued on an upward trend, although the
rate of growth had slackened from the final quarter of last year.
Slightly more than one-fourth of the firms polled reported that they
were receiving more orders and making more shipments in January
compared with December, while about half indicated that orders and
shipments were steady. Gains were more common among producers of
metal products and equipment, while steady conditions or declining
activity were more frequently noted by makers of nondurable goods.
Employment conditions were virtually steady at manufacturing plants in the District. While there were a few reports of stepped-up hiring, three-fourths of the industrial establishments contacted were holding employment steady. On balance, area firms were reducing working hours slightly in early January.
Industrial prices in the region continued to move up as the new year began. More than half of the firms commenting on prices said they paid more for inputs in January than they had in December, and there were very few reports of price declines. About one-fourth of the manufacturers contacted said they were raising prices for their own products; most said they were holding prices steady.
Looking ahead, Third District manufacturers expect business to continue moving up through the first half of the year. About four in ten of the firms contacted for this report forecast increases in orders and shipments, and two in ten anticipate declining demand for their products. Overall, Third District manufacturers plan to hold employment and working hours steady, and to reduce inventories. While most will also keep capital spending on an even pace, more than one-fourth have scheduled increased investment expenditures for the first half of the year.
Retail
Retailers in the Third District gave mixed reports on sales for the
Christmas shopping period. Stores selling consumer electronic items-
-personal computers, large-screen televisions, and camcorders--said
sales were well above the year-ago period. Home furnishings were
also listed among the categories of merchandise that sold well.
Apparel retailers had disappointing results; with sales falling
below expectations, they were prompted to offer deep discounts both
before and after Christmas. The pace of retail sales in early
January appeared to be somewhat subdued, with price reductions being
continued in efforts to reduce inventories, especially for apparel.
Third District auto dealers said sales slowed seasonally in December but rose above the level of December 1993. In general, dealers reported sales gains for 1994 over 1993, and they expect continued increases in unit sales in 1995. Sport-utility vehicles continued to be in demand, and price increases and waiting lists were becoming common for these and some other popular models.
Finance
Third District commercial bank lending officers contacted in early
January said loan volume was growing moderately. Several mentioned
modest growth in commercial and industrial lending, with middle-
market companies prominent among new borrowers. Bankers continued to
describe the market for new business lending as competitive. In
general, bankers also said consumer credit was growing, with credit
card borrowing being the strongest category of personal lending.
Some bankers noted that while there were signs of increased interest
by institutional investors in commercial real estate, banks in the
District did not plan to increase their exposure in office or
industrial properties.
The outlook among the commercial bank officers interviewed for this report is generally positive but cautious. While most expect the region's economic performance to be good, at least through the first half of the year, they foresee a slowdown in the growth of consumer spending that will limit growth in total business activity for the year as a whole. In line with this forecast, they expect overall loan growth to ease as the year progresses. Several bankers also noted that loan profitability, for both business and consumer lending, has been coming under pressure and that they may review their own lending plans for the year as a result.