August 6, 1997 Federal Reserve Districts Third District - Philadelphia

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Economic conditions in the Third District improved moderately in June, and the pickup was continuing into July, according to business contacts around the region. Manufacturers generally reported gains in shipments and orders in July. Retailers noted some growth in sales during June and the first weeks of July, although auto dealers said overall sales of new vehicles were off. Slackening demand for cars offset increased sales of light trucks. Bankers said consumer lending continued to advance and there have been some small increases in commercial lending recently. Tourism officials throughout the District said the summer season was off to a good start, with generally strong attendance at beach and mountain resorts and high hotel occupancy rates in major cities. Manufacturing Manufacturing activity in the Third District generally continued to expand in July. Nearly half of the industrial firms contacted indicated that orders for and shipments of their products were increasing. Fewer than one in five reported declining demand for the goods they make. The strongest sectors appeared to be fabricated metal products--especially building products--processed food, and stone, clay, and glass products. Conversely, some producers of textiles, primary metals, and paper products noted recent slackening in demand and output. For the region's manufacturing industries as a whole, order backlogs were edging up, but delivery times were unchanged. Inventories have been reduced slightly. There has also been a small increase in employment. Several manufacturers reported that they have been keeping the prices of their products steady in response to continuing strong foreign competition, and makers of consumer goods said retailers have been pressing them to keep prices from rising as they face heavy store-versus-store rivalry. Retail Retailers in the Third District reported marginal improvements for late June and early July. Jewelry stores posted better-than-average gains; sales of clothing items such as shoes and seasonal apparel also increased, but electronics continued to struggle. Business at consumer services firms was said to be strong, especially for computer-related services. In general, stores did not appear to be overstocked, and there has been little unplanned discounting. Store executives described consumer confidence as strong. Most retailers expect sales to grow consistently for the remainder of the year, and they forecast an increase of around 5 percent, in current dollars, for 1997 as a whole. Most automobile dealers reported that total sales for June and early July continued on a slight downward trend. Dealers estimate the decline at around 2 percent from a year ago. The light truck market continued to expand at a rate of about 5 percent, year-over-year, but this increase was not enough to offset the declining car market. On average, dealers reported that inventories were generally high, which they said encouraged manufacturers to offer relatively large sales incentives. In contrast to the weakness in new car demand, dealers said sales of used cars remained strong and service activity was high. Finance Loan volumes were moving up modestly in July, according to lending officers at major Third District banks. Some reported recent gains in commercial lending, especially to small and mid-size companies, but the overall increase in business lending was described as slight. Somewhat larger increases were generally reported for consumer lending, including credit cards and auto leasing. Some banks have stepped up marketing efforts for home equity loans recently, and they have seen an increase in this type of lending. Although bankers noted a recent slowing in the rate of credit card delinquencies, they believe some further deterioration in the quality of credit card portfolios can be expected. Looking ahead, bankers do not foresee an acceleration of loan growth. Despite the small recent increase in business lending, most of the bankers contacted for this report said the demand for commercial loans is not strong. Consumer lending is expected to continue growing, but only a modest increase is anticipated. Facing declining net interest margins and slow growth in lending, banks in the Third District are increasingly looking to introduce and expand fee-earning financial services for both businesses and individuals. Travel and Tourism Travel and tourism officials in Pennsylvania, New Jersey, and Delaware gave good reports for the beginning of the summer season. Visitation at beach resorts in New Jersey and Delaware was high on the Memorial Day and Fourth of July holiday weekends. Visitor counts at Pennsylvania mountain resorts were also good for those weekends. Campground usage has been very high in many areas of the District, as vacationers have taken advantage of an extended period of warm, dry weather. Hotel occupancy has been characterized as very good in the larger towns and cities throughout the three states. Tourism officials said travel to cities has been higher than usual so far this season because of increased business travel and an increase in the number of vacationers going to cities to visit historic sites and attend cultural events. If current trends continue, tourism officials expect that vacation-related business this summer will exceed last year's in most areas and set records in some places. Return to top New York Cleveland