January 17, 1996
Reports from business contacts in the Third District in early January indicated that economic activity appeared to be easing. A decline in new orders for the products of area plants indicated that the pace of manufacturing was slipping a bit as the year began. The Christmas selling season was a disappointment for most retailers. Store executives said their year-over-year comparisons--in dollar terms--ranged from slight drops to slight gains. Unplanned price markdowns appear to have been widespread, and while this discounting boosted the sales of some goods, such as computers, it failed to spark the buying of others, such as apparel. Bankers generally noted some gains in credit card lending, although the overall pickup did not appear to be substantial, but said other categories of lending were flat.
Looking ahead, business contacts see only slight improvement in business conditions, at best, during 1996. Area manufacturers forecast some increased demand for their products during the first half of the year, but they indicate they may trim employment. Retailers expect consumers to be conservative in their spending, although they say some small sales gains may be posted for the year as a whole. Bankers expect overall economic activity in the region to advance slowly this year, and they expect lending, both to consumers and to businesses, to grow only slightly.
Manufacturing
The pace of manufacturing activity in the Third District appeared to
slacken as 1996 began. Firms in the region reported that the
increase in shipments they saw in December was losing momentum and
new orders were falling. Order backlogs for area firms were dropping
and inventories were steady. While about two-thirds of the firms
contacted for this report were maintaining constant employment
levels, about one in five were making cuts.
Prices of industrial goods in the region remain steady. Most of the area manufacturers who commented on costs and prices said charges for both the goods they purchase and the products they make were flat, although a few noted recent increases in input costs.
Expectations among Third District manufacturers are mixed. While more than one-third of the firms contacted for this report expect their new orders and shipments to increase during the first half of 1996, about one-fifth anticipate declining demand for their products. On balance, manufacturers in the region expect to make some reductions in employment in the first two quarters of the year and they plan to hold capital spending steady.
Retail
Most Third District retailers reported that sales for December did
not come up to their expectations despite a surge the weekend before
Christmas and during the final week of the year. Overall, the dollar
volume of retail sales for stores in the region was about even with
that of a year ago, and results for individual companies generally
ranged from decreases of a few percent to increases of a few
percent. Last-minute price markdowns were made on a wide range of
goods, and store executives said gross selling margins were
significantly reduced.
Merchants said personal computers, accessories, and software sold relatively well, although discounting was fairly heavy for these items, while apparel sales were weak despite discounting. Some retailers said they expect apparel sales to remain relatively soft as consumer buying patterns continue to shift toward home goods and away from apparel and personal items. For overall retail sales, the consensus is that there may be some improvement during 1996, albeit slight.
Finance
Third District bankers contacted in early January said credit card
lending had risen seasonally but other credit categories were
essentially flat. The total rise in consumer loan volume was not
expected to be large, however, as retail sales did not appear to be
increasing substantially during the December-January selling period.
Bankers generally indicated that credit demand from businesses was
not likely to pick up strongly because many potential business
borrowers appeared to be meeting their financing needs internally.
Some bankers also noted that financing was readily available to
businesses from nonbank sources, further damping demand for bank
credit.
Looking ahead, bankers see slow economic growth for the Third District, which they expect will hamper their ability to increase lending. Some banks are increasingly looking outside the region for potential new commercial borrowers. Most bankers agree that competition for new business will be very sharp in 1996, but they expect to maintain current underwriting standards.