May 10, 1995
Indications of business activity in the Third District showed less strength in April than earlier in the year. Manufacturers reported a dip in orders and shipments. Retailers said sales were running at a steady pace, but somewhat below their expectations. Auto dealers also reported that sales were below forecasts for the month. Bankers generally indicated that loan demand was modest. Consumer lending was dropping, mortgage activity was moving up slightly, and business loan volume outstanding was about steady.
The outlook among business contacts surveyed for this report is subdued. Manufacturers forecast slight increases in orders and shipments over the next six months, but they are planning to trim payrolls. Retailers are looking for a seasonal upturn in sales, but they are being cautious in their planning. Bankers have mixed views on the future course of the economy but generally do not foresee stronger loan demand in the near term.
Manufacturing
Manufacturing activity in the Third District declined somewhat in
April, according to reports from industrial firms. While about half
of the manufacturers contacted during the month said operations at
their plants were running at a steady pace, about one-third
indicated a slowdown from March, and only one-fifth said business
had improved. On balance, shipments from plants in the region were
off fractionally, and new orders were down compared to March.
Despite the slower shipments and order rates, manufacturers
indicated that their inventory levels had declined. Plant managers
reported that employment levels were reduced in April compared to
March, with cutbacks in both numbers of workers and hours worked.
The outlook among Third District manufacturers is mixed. Positive opinions just slightly outnumber negative views, resulting in a slight balance in favor of improvement in orders and shipments, although order backlogs and inventories are expected to continue trending down. The overall forecast for employment is also negative.
While Third District manufacturers continued to note price hikes for inputs, the extent of the increases appeared to be moderating from the first quarter. For their own products, area manufacturers generally reported they were holding prices steady. Looking ahead, nearly half of the area firms surveyed anticipate further increases in input costs and one-fourth plan to raise prices for the goods they produce.
Retail
Third District retailers generally reported that sales in late April
were running about even with the pace set in March and early April
and with the April 1994 rate. This was somewhat below merchants'
expectations, and several noted that, as a result, inventories were
above plan. Additionally, stores in Philadelphia suffered
substantial reductions in sales during a two-week public transit
strike at the beginning of April, and they have recouped very
little, if any, of the lost business.
Most of the store executives surveyed for this report said they see few signs that sales are picking up, although they hope that the onset of spring weather will provide the usual seasonal upturn. Most remain cautious in their forecasts, however, and some said they may consider reducing planned purchases of goods if the sales rate does not improve.
Auto dealers reported that sales in April were steady, but below the year-ago pace and below their expectations. They said inventories have edged up. While dealers hope for the usual spring increase in sales, some believe the current decline from last year's sales rate portends a cyclically slow period ahead.
Finance
Third District bankers contacted in late April generally described
overall loan demand as modest. Most reported that commercial and
industrial loan volumes outstanding were level during April. Some
bankers said that total consumer lending had slipped a bit, mainly
due to a decline in auto loans. Residential mortgage lending
activity appeared to be near steady, with recent increases in
purchase mortgages offsetting a continuing drop in refinancings.
Looking ahead, bankers in the District have mixed views about whether economic growth will accelerate or remain at its current pace. Nevertheless, most said they see no current evidence that loan demand is rising. Competition for business loans remains strong, and, while terms are being eased, new business has not been forthcoming. Consumer lending also has shown no signs of picking up.