March 13, 1996
Reports from major business sectors in the Third District in February indicated that economic activity has picked up after a storm-induced slowdown in January. However, the gain has not been sharp, and, according to these reports, business in the region has been relatively steady in recent weeks. Manufacturers generally indicated that while shipments were up a bit, new orders were flat. Retailers said sales had rebounded from January when snowstorms kept shoppers out of the stores, but most merchants indicated they were not making up all the lost sales and were merely back on a steady track. Auto dealers gave similar reports. Bankers said lending was either flat at their institutions or growing sluggishly. There were some positive reports from the real estate sector. Residential real estate agents and home builders were experiencing some increased traffic and greater sales. Commercial real estate agents said demand for office space appeared to be firming, and leasing and construction of industrial buildings were moving up.
Expectations vary within the Third District business community. Manufacturers anticipate some improvement in the next two quarters. Retailers do not foresee immediate gains, but they are hopeful the pace of sales will improve in the spring. Auto dealers expect only a steady sales rate. Bankers report no evidence that loan demand will accelerate soon. However, real estate agents expect continued modest improvement in both residential and commercial markets.
Manufacturing
Manufacturing activity in the Third District maintained a level pace
in February according to reports from industrial firms, although
slightly more firms said they were experiencing a pickup than said
business was off. Firms in most of the major manufacturing sectors
in the District indicated that demand for their products was just
steady. However, some gains in orders were noted by firms producing
metal products, nonelectrical machinery, chemicals, paper products,
and textiles. Overall, however, demand for manufactured products did
not appear to be strengthening for firms in the region; on balance,
they reported that order backlogs continued on the downward trend
that began late last year. A dip in employment and a decline in
industrial prices that manufacturers noted in February are further
evidence of slack in the goods-producing sector of the District.
Looking ahead, most of the Third District manufacturers contacted in February expect demand for their products to pick up by summer. On balance, they foresee a rising pace of orders and shipments, but they do not expect order backlogs to move up strongly. Likewise, they anticipate only very slight increases in employment.
Retail
Most of the retailers contacted for this report said sales at their
stores rebounded in February from the slackened pace of January when
snowstorms seriously hampered road travel and kept shoppers at home.
Some store officials think they may have recouped some of the sales
lost in January. However, the pickup appears only to have put retail
sales in the District back on a steady course; February sales just
matched expectations of most of the retailers surveyed at the end of
the month. Selling strategies remain promotional and price markdowns
are common. Store officials are hopeful that sales will improve as
spring approaches.
Auto dealers also noted a pickup in sales in February following a poor January. However, they said sales were running at a pace just matching last year's at this time, and they expect that rate to continue in the months ahead.
Finance
Most of the Third District banks contacted for this report said
overall loan demand was nearly flat or growing sluggishly in
February. Lending officers continued to describe the market for
business loans as very competitive. They said nonbank lenders were
aggressively seeking to expand lending to large companies and
competition was strong among banks for middle-market customers.
Consumer lending was relatively level according to bankers because
the usual seasonal decline in credit card loan volumes was offset by
some gains in other types of personal loans. Some banks were
stepping up commercial real estate lending and lending to home
builders, but credit officers at these banks said this lending was
confined to borrowers with significant equity stakes in their
properties. In general, bankers expect overall lending to trend up
slightly in the next few months.
Real Estate And Construction
Residential realtors surveyed in February said traffic at their
offices had increased noticeably and serious interest in home buying
was evident in some areas of the Third District. While reports
varied around the District, in some local markets sellers were
getting multiple offers for their homes and selling them relatively
quickly. However, realtors noted that the inventory of homes for
sale remains large and that asking prices and bids have been fairly
stable. New home sales may be gaining also; several builders noted
increased traffic at their developments and a pickup in the signing
of contracts for new homes.
Commercial realtors said demand for industrial space, especially for warehouses and distribution centers, has been increasing. They attribute this to moves by several firms to consolidate activities into large buildings in the region. Realtors expect further increases in land development activity and construction for these types of buildings.
Office markets in the Third District appeared to be firming,
according to commercial realtors and building managers. Vacancy
rates at the end of 1995 were estimated at 15 percent for the
Philadelphia central business district and in the range of 15 to 20
percent in suburban markets. Realtors expect a slow downward trend
in vacancy rates in the absence of new construction. Some realtors
noted increased interest in the purchase of office buildings by real
estate investment trusts.