January 16, 2002
Federal Reserve Districts
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Business conditions in the Third District remained slow in December, but there were a few positive signs. Manufacturers reported continuing declines in shipments and orders, but the rate of decline appeared to be easing. Sales of general merchandise at area stores for the Christmas shopping period increased a few percent over the prior year, slightly exceeding pessimistic forecasts. Auto sales fell in December compared to November but seemed to be holding steady in early January. Bank loan volumes increased in December in the major credit categories: business, consumer, and real estate.
The outlook in the Third District business community is cautious. Manufacturers predict an upturn by the middle of the year, and they have slightly raised capital spending plans for the first half of the year. Retailers are not certain that sales will continue moving up in the next few months, and they have generally modest sales targets for the first half of the year. Auto dealers anticipate nearly steady sales for most of this year at a slower rate than last year. Bank credit officers see some signs of modestly increasing demand for commercial and industrial loans, but they say the outlook for consumer lending is unclear and real estate lending could ease.
Local manufacturers look for recovery to get under way by midyear. Just over half of the firms surveyed in December forecast increases in orders and shipments over the next six months. They also expect some firming in industrial prices. On balance, firms in the region have slightly increased their capital spending plans for the first two quarters of the year.
Cautious purchasing by stores prior to the holidays and aggressive discounting afterwards has generally left area retailers with acceptable inventory levels. Nevertheless, stores in the region are unlikely to significantly increase buying of spring merchandise. Most retailers have very modest sales targets for the first half of this year. They see no evidence that consumers will move to a higher pace of spending soon. Some even expect consumers to look for ways to economize further, at least for the next quarter or two, until general economic conditions improve.
Auto sales in the region fell in December from November, but sales in early January appeared to be steady at the December pace. Inventories were generally described as low. Dealers expect sales to fall as manufacturers' incentive-financing programs are scaled back, but they do not anticipate a continuing decline in demand. Rather, most of those contacted for this report anticipate a generally steady sales rate this year, albeit below last year's overall rate.
Bankers in the Third District expect business loan demand to move up, but not strongly. Overall gains in commercial and industrial loans will be limited by bankers' concern about extending credit to industries currently or potentially experiencing relatively weak conditions, such as travel, food service, health care, and construction. Bank lending officers are uncertain of the course of consumer and real estate lending, although many anticipate some easing in the growth of real estate loans after last year's large increase.