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Most business sectors in the Third District were experiencing continued growth in late May and early June. Manufacturers' shipments and orders were increasing. Sales of general merchandise and motor vehicles were on the rise. Commercial and residential real estate markets were active, and home building continued to be strong. Despite the continued expansion in business activity, bankers in the region indicated that overall loan volume was just steady. There were gains in real estate lending but declines in consumer lending, and business lending has been flat.
Manufacturing
Third District manufacturers reported continued gains in May. About one-third of the industrial firms contacted said shipments and orders increased during the month; about half said they were steady. Improvement was noted in nearly all major manufacturing sectors in the region, but some producers of primary metals and construction materials noted that orders from Asia were still trending down. On average, order backlogs at Third District manufacturers have been steady, as have inventories. About three-fourths of the companies contacted for this report indicated that employment was steady in May, although firms in a variety of durable goods sectors added workers. Industrial prices have been steady; about eight out of ten manufacturers commenting on prices said both input costs and output prices were unchanged from April to May.
Looking ahead, area manufacturers expect continued moderate growth in the next six months. They forecast increases in orders and shipments, but they expect employment to remain close to current levels. About one-fourth of the surveyed firms plan to increase capital spending, and a few firms noted plans for major expansions of capacity.
Retail
Third District retailers generally described sales in May as healthy, continuing on the growth trend that began in April. Positive reports were received from all types of stores and for all lines of goods. Sales of home goods and apparel were said to be above expectations. Based on comments from the retailers contacted, sales appeared to be increasing at an annual rate of about 5 percent or slightly higher, in current dollars. In general, store executives said their inventories were at appropriate levels and selling prices were steady.
Auto dealers in the region generally reported growing sales during May and the first week of June. Generous manufacturers' incentives were credited for the increase. Dealers expressed satisfaction with inventory levels. Although some dealers voiced concern that the current upward trend in sales could soon falter, most were optimistic that sales will remain good as long as overall economic conditions remain positive.
Finance
Total loan volume outstanding at major Third District banks has been level in recent weeks, according to bankers contacted in early June. There have been increases in home lending, but consumer loan volume has eased down. Bankers continued to describe commercial and industrial lending as extremely competitive for both large credits and loans to middle market and small businesses. Some banks said they have been increasing real estate-related business lending for residential development and some commercial construction projects, but overall business lending has not increased lately.
Real Estate and Construction
Contacts in the commercial real estate industry reported that Third District markets have been very active, with a strong pace of sales and leasing. Rents have increased in response to continued strong demand for modern office and warehouse facilities, although vacancy rates in the region have risen since the year began. The recent completion of several office and industrial buildings is cited as the main cause of the increase in vacancies; however, reductions in staffing at some downtown Philadelphia companies were also noted. The office vacancy rate for central Philadelphia is estimated at 16 percent, up from 13 percent at the end of 1997, and the rate for Wilmington is estimated at 7 percent, unchanged from year-end 1997. In suburban markets, vacancy rates range from 7 to 17 percent, about 2 percentage points above the range at the end of 1997. Commercial real estate agents expect suburban markets to remain active through the rest of the year, but they express some concern that corporate downsizings in Philadelphia and relocations out of the city could weaken the central business district market.
Home builders in the region generally reported a continuing high rate of sales in May. They indicated that buyers are favoring single homes and townhouses over condominiums and are increasingly contracting for higher-priced options in houses to be constructed. Average selling prices have increased a few percent from last year, according to builders, who also note that recent increases in the costs of materials and labor have moderated from last year. Real estate agents said the sales pace for existing homes has been increasing recently. Many noted that multiple offers for homes have become more common this spring than in the past few years; nonetheless, most said that price appreciation has been slim.
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New York