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Third District business activity was mostly steady in July. Manufacturers reported a slight increase in shipments but a level pace of new orders. Retail sales in June and July were even with the same period a year ago, but sales of motor vehicles have edged down. Although overall retail sales were weaker than expected by many of the region's merchants, tourism activity has been brisk in the District, and spending on travel and recreation activities has been high. Bank lending continued to rise, on balance, but growth in business loans has slowed and real estate lending has slipped.
Looking ahead, most of the business contacts surveyed for this report expect growth to pick up from July's pace but continue at a slower rate than in the first half of the year. Manufacturers forecast modest gains in shipments and new orders. Retailers expect sales to rise for the back-to-school shopping period. Bankers anticipate continued but slower growth in overall lending, although they expect a further decline in real estate lending.
Manufacturing
Manufacturing activity in the Third District was virtually flat in July. Although shipments from the region's factories rose slightly, new orders were basically unchanged. One-half of the industrial firms contacted in July reported steady order rates, and the number posting increases was offset by an almost equal number recording decreases in orders for their products. A few firms that manufacture capital equipment reported growth in orders, but declining demand was noted by firms that make products ranging from industrial materials to consumer goods. Overall, order backlogs fell among area manufacturers, and inventories also edged down.
Manufacturers continue to report rising input costs, particularly for raw materials, but only a small percentage of the firms polled in July indicated that they had raised prices for the products they make. Rising costs were noted in virtually all the major goods-producing sectors in the region, but only a few firms, primarily makers of industrial equipment, have raised prices for their own products.
The consensus among the region's manufacturers is that business will pick up modestly in the second half of the year. On balance, they forecast increases in orders and shipments, but they expect steady order backlogs and decreasing delivery times. Surveyed firms anticipate the upward trend in input costs will persist, but the number of firms that plan to raise the prices of their own products remains small.
Retail
Third District retail sales during June and July varied among the stores contacted for this report. On balance, sales for the two months were about the same as a year ago. Jewelry stores and sporting goods retailers noted fairly strong gains, as did a few clothing specialty stores. But other types of specialty stores reported lower sales compared with a year ago, and apparel sales were not strong at department stores. Department stores also indicated that overall sales were about flat compared with last year. Retailers began clearance sales in July to move out summer merchandise, and this gave a slight boost to sales. The clearance sales also helped bring inventories to appropriate levels, according to most of the store executives polled in July. Although sales are expected to be seasonally slow in August, some stores have already begun to promote back-to-school merchandise, and these stores reported good results. Merchants believe consumer confidence remains high, and they expect a pickup in sales as the fall selling season approaches.
Sales of automobiles and light trucks slowed in July, according to dealers in the region. Dealers said their inventories have increased, but they are not much above desired levels. Manufacturers continue to offer extensive rebates and incentive financing.
Tourism
Tourism officials around the region report very high levels of tourist, lodging, and recreational activity. Hotels and campgrounds have been at full occupancy in ocean beach resorts and mountain recreation areas, and some seashore resorts have posted records for daily visitation. Amusement and theme parks also report high attendance. Business has been above expectations at restaurants and stores in resort areas. Contacts indicated that increased gasoline prices do not appear to have reduced auto travel within the region. Besides travel to traditional vacation areas, travel to less well-known areas has increased this year, according to tourism officials, as a result of stepped-up promotional activity and increased popularity of more strenuous vacation activities such as cycling and hiking.
Finance
Total loan volume at Third District banks was growing moderately in July, although real estate-related lending and some types of personal loans showed signs of easing. Bankers reported growth in commercial and industrial lending and credit card loans but generally indicated that other types of consumer installment lending were flat. Some of the weakness in bank consumer lending was attributed to competition from automobile finance companies. Some banks also noted recent dips in home equity lending and residential mortgage activity.
Concern for credit quality appears to be growing. Several bank credit officers noted that the percentage of borrowers that were slow in making loan payments has increased among both consumers and businesses. Additionally, some bankers said that their business borrowers were falling further behind their revenue and profit goals. These shortfalls may lead to credit reviews.
Several banks indicated that deposit growth has failed to meet their plans for the year. Some banks said that even with slowing growth in loans, they still have had difficulty obtaining the deposits they require to meet their needs. Bankers said they have been facing growing competition for personal deposit accounts from brokerage firms and mutual funds.
Looking ahead, bankers in the District expect slow growth in lending, overall. Although most expect economic conditions in the region to remain good, they anticipate some slowing in business expansion. They forecast an easing from the current rate of growth in business loans and a decline in commercial and residential real estate lending. They expect current trends in consumer lending to continue, with rising credit card lending but no growth in other types of consumer loans.
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New York