Beige Book

CONFIDENTIAL (FR)

CURRENT ECONOMIC COMMENT BY DISTRICT

Prepared for the

Federal Open Market Committee

by the Staff

May 5, 1971

TABLE OF CONTENTS

SUMMARY page i

First District-Boston page 1

Second District-New York page 4

Third District-Philadelphia page 7

Fourth District-Cleveland page 10

Fifth District-Richmond page 13

Sixth District-Atlanta page 16

Seventh District-Chicago page 20

Eighth District-St. Louis page 24

Ninth District-Minneapolis page 27

Tenth District-Kansas City page 30

Eleventh District-Dallas page 33

Twelfth District-San Francisco page 36

SUMMARY*

[Asterisk: Prepared by the Federal Reserve Bank of New York.]

The overall impression that emerges from the Districts Red Book

reports is that the economic outlook has taken distinct, albeit moderate,

turn for the better over the past month.

Among the most encouraging

developments is the evidence emanating from most parts of the country that

the long awaited rise in consumer spending may finally be getting underway

even though an underlying note of caution characterizes most discussion of

consumer attitudes.

Several Districts reports also point to strong residei

construction activity.

On the other hand, while businessmen may be more

optimistic than a month ago, business confidence has not as yet grown to tl

point where firms are rushing to build up inventories, nor is there much, :

any, evidence of an upward revision in planned outlays for plant and equipr

Moreover, apart from a few scattered signs of improvement, the unemployment

picture remains rather bleak.

Finally, continued concern over inflation

was expressed by a number of respondents in several of the Districts.

Turning to consumer spending, all Districts report some

improvement over the past month.

In most instances, however, the increases

in retail sales are characterized as "slight" or "moderate", and the

consumer is usually described as still cautious, and cost conscious.

The

Boston Bank, for example, reports that retail sales in New England seem

to have picked up somewhat, but that the consumer has by no means "broken

out".

Reports on retail trade in the Chicago District were more favorable

than earlier in the year, but the improvement is characterized as modest.

Similarly, the San Francisco Bank reports that retail sales are rising at

a moderate pace but that in general retailers expect no major jump in

consumer spending at this time.

Some

of the reports, however, are more

optimistic.

The Philadelphia Bank states that retailers report a

noticeable pickup in sales, even though consumers remain bargain conscious.

The St. Louis Bank reports that retail sales picked up considerably in

the week before Easter and have remained at the higher level since then,

with clothing and appliances moving well and with a strong demand for

automobiles.

All respondents in the Minneapolis and New York Districts

expressing an opinion on this topic felt that the retail sales picture

had improved as compared to earlier in the year, and a special survey of

leading department stores in the Atlanta District reveal that sales have

been exceeding expectations.

Residential construction also continues to be a bright spot in

the economic outlook—indeed perhaps a brighter one than earlier in the

year.

The Richmond Bank thus reports that the majority of banking

respondents throughout the District feel a sustained surge in residential

construction, as well as a revival in nonresidential construction, is

underway, while Chicago reports that prospects for residential construction

appear even stronger than in earlier months.

Similarly optimistic

assessments appear in several other District reports.

Along with the pick up in retail sales and the sustained strength

in the construction industry, there are reports of an increase in

manufacturers sales and orders in a number of areas throughout the

country.

The Philadelphia Bank, for example, reports that a recent poll

of area industrialists shows that for April almost four times as many

firms registered increases in sales and new orders than showing decreases,

while the Cleveland Bank's latest survey of Fourth District manufacturers

points to further improvement in March, particularly in new orders,

shipments, and backlogs.

That Bank's report, however, cautions that some

tapering off in the rate of gain may have occurred in April.

A more rapid expansion of industrial production, however, has

been inhibited by the fact that business confidence, although stronger

than earlier in the year, has not as yet risen to the point where manufacturers and retailers are willing to aggressively build up inventories,

but prefer to maintain stocks at current levels.

Thus, the San Francisco

Bank reports that, apart from stock piling of steel, and some rise in

building materials inventories, there is little evidence that businesses

are rebuilding inventories.

The Richmond Bank reports an actual decline

on balance, in both manufacturers and retailers inventories, while the

St. Louis Bank reports that retail inventories have not been increased.

Opinions are mixed among the Banks that discuss the unemployment

picture in their District.

The Kansas City Bank feels that the employment

situation is still soft and that only a modest improvement is expected in

the coming months.

Similarly most respondents in the Dallas Bank District

thought that unemployment in that area would not decline much, if at all,

over the balance of the year.

Unemployment is apparently continuing to

rise in the Chicago area, while the Cleveland Bank characterizes the demand

for labor as sluggish.

On the other hand, signs of some, if only tentative,

improvement can be found in the reports of the Philadelphia, Richmond and

St. Louis Banks.

Most Districts reported a firming of demand for bank loans,

especially consumer and mortgage loans, but in several instances business

loans as well.

In general, loans continue to be readily available.

FIRST DISTRICT—BOSTON

April redbook calls to First District directors produced the

first hard evidence of improved business conditions.

Such reports were

scattered, however, and the majority of our respondents continue to

report the moderate pace of retail and industrial activity which has

predominated since last winter.

Area financial institutions present an essentially unchanged

picture from a month ago.

levels.

Savings and time deposit flows continue at high

Further cuts on passbook savings have appeared in some localities

but, with the exception of Providence, R. I., major regional commercial

and mutual savings banks have not yet moved on deposit rates.

The flurry

or mortgage rate cuts observed during March seems to have slowed

considerably in the last month.

Mortgage demand is reported as running

at brisk levels.

Retail sales activity in New England seems to have picked up

some over the last month.

The consumer has by no means "broken out",

however, and the continued impression is given of extreme consumer cost

consciousness.

Autos constitute an important exception to this situation,

with respondents in several areas reporting dealer satisfaction with

April sales levels.

One of our directors who heads a large and highly diversified

conglomerate was able to report a substantial improvement in sales and

order levels in virtually every division during April.

Most of his

corporate divisions, including producers of aircraft, recreational boats,

heavy engines, and capital goods equipment, are now running above 1971

projections for the year to date.

Our other directors cognizant of

industrial and manufacturing activity could report no such hard evidence

of improving demand conditions, however, and reported April results as

only marginally better than the February-March period.

Professor Otto Eckstein's updated DRI forecast places 1971 GNP

at $1,048 billion, edging as high as $1,052 billion should consumer spending

attitudes change.

The basic point which Eckstein wished to stress in this

month' s commentary is that the current economic outlook is virtually unchanged

from December.

Recent developments, including the first quarter GNP figures,

are right on track with the forecasts made as early as November, and nothing

materially different has yet emerged to warrant increased optimism from yearend levels.

Eckstein also noted that the last 1972 employment outlook is

extremely bearish, when one considers the normal growth of the labor force

over the intervening period plus the need to re-employ those who have lost

work in the last eighteen months.

returning servicemen from Vietnam.

Added to this will be the influx of

All told, nearly 4 1/2 million jobs

would be needed in the next eighteen months to approach 5 percent unemployment by the end of 1972.

Given this situation, Eckstein suggests that

there is little potential for harm if monetary policy errs on the side of

too much stimulus in the coming months.

Professor Tobin expressed no surprise at the first quarter GNP

figures, nor does he find much comfort in them.

He took strong issue with

the notion that we're currently in a liquidity trap, stating that a

liquidity excess in conjunction with a 5 1/2 percent prime rate would

certainly be an historical oddity.

Tobin stressed again his view that

further monetary ease would likely produce both consumption and residential

construction benefits later this year, as well as a stimulus to plant and

equipment spending during 1972.

Professors Shapiro and Wallich share a very similar outlook

currently.

Both noted their conviction that a broad-based consumer

resurgence has begun, and that personal savings rates will continue to

fall over the rest of the year, adding strength to the economy.

They also

expressed continued optimism over the prospects for long-term rate declines

over the summer, although Shapiro noted that the recent rise in the prime

rate will probably postpone this development by a month or six weeks.

Both Wallich and Shapiro share the general view that first-quarter monetary

stimulus appears to have been excessive, and that adjustments should now

be made toward limiting Ml growth for the year to 6 percent.

Professor Samuelson was unavailable for comment this month.

SECOND DISTRICT—NEW YORK

A distinctly rosier picture of consumer spending than that

painted a month ago emerged from the views expressed by the Directors of

this Bank and of the Buffalo Branch, and other business leaders.

With

some exceptions, however, business confidence outside of the retail area

was less than strong.

Nevertheless, the implementation at this time of

fiscal measures to stimulate the economy were generally opposed, reflecting

concern over the continued presence of inflation pressures.

The President's

program to curb the rise in cost in the construction industry was given

little or no chance of success.

With respect to consumer spending, the Chairman of the Board of

a large retail chain that includes a number of sizable department stores,

and a large diversified apparel manufacturing business, was very optimistic.

He reported a sharp increase in his firm's sales in recent weeks both

through its own outlets as well as to other major retailers, and felt that

the consumer had finally "turned loose".

The vice president of another

large retail chain reported that his firm's business had picked up somewhat

in the past month, and that he looked for a good increase in the months

ahead.

Similar sentiments were expressed by the president of a relatively

high priced New York City department store with branches in the suburbs,

while the president of a large medium priced store felt there had been a

definite improvement in recent weeks, and assessed retail sales prospects

with "restrained optimism".

Several presidents of upstate banks saw an

upsurge in consumer confidence, while the president of a textile firm stated

that his retail store customers were building up inventories of his firm's

products.

Indeed, with varying degrees of enthusiasm, all the Directors

and other business leaders that expressed an opinion on the subject felt

either that sales had picked up in the past weeks or shortly would do so.

Views expressed regarding business confidence were somewhat more

guarded.

The chairman and president of a diversified electronic concern

did not look for a "roaring upswing" in business in the immediate future.

The president of an upstate bank saw businessmen as hopeful, but waiting

to see more sign of an upturn.

Some of the respondents, however, expressed

the opinion that the rise in consumer spending and the concomitant increase

in reorders should soon be reflected in a strengthening of general business

confidence.

The president of one of the largest construction companies in

the country stated that he was very optimistic "over the immediate future".

He did express concern, however, over the labor costs in the construction

industry.

He looked for continued high wage increases, with little or no

improvement in productivity.

He felt that the President's voluntary program

for wage and price restraint had "no real teeth" and probably would have

little effect.

Indeed, the respondents that expressed an opinion on this

subject showed an almost total lack of confidence in the effectiveness of

this program.

This attitude was perhaps best summed up in the remarks of

the vice president of Rochester's largest firm, a Director, who stated that

he saw no chance for success in the program, and who indicated that his

contacts with the organized construction industry "show no influence from

the program".

Continued concern over the danger of refueling inflationary

pressures was also reflected in the fact that even though business

confidence still seemed to be lacking real strength, all but one of the

respondents who commented on the topic felt that it would be unwise at

this time to attempt to speed economic recovery through additional

fiscal stimulus through the tax cut speedups that have recently been

proposed.

Most agreed, however, that if fiscal stimulus is desired, the

implementation of these proposals would be the best way to proceed.

With respect to bank lending policies, most bankers reported

that their banks were seeking to make new loans, in some cases aggressively.

The Chairman of the Board of an upstate bank, however, noted that the

easing of credit terms seen in commercial centers had not spread to country

areas, and that his bank was not aggressively seeking new business loans.

THIRD DISTRICT —

PHILADELPHIA

The economic outlook is brighter than a month ago, but caution

remains the watchword of businessmen, bankers, and directors in the Third

District.

Manufacturers are optimistic about sales and new orders.

On

balance, they plan no further layoffs and hope to add to their payrolls

during the second half of the years.

on outlays for plant and equipment.

in sales.

However, they plan to hold the line

Retailers report a noticeable pickup

Most indicate, though, that the consumer remains bargain

conscious.

Bankers report a modest firming in loan demand, but say funds

remain plentiful.

The modest expansion of Third District business activity is

expected to continue, according to area manufacturers.

A recent poll of

area industrialists shows that for April almost four times as many firms

are registering increases in sales and new orders than are realizing

decreases.

Regional executives are also optimistic about the outlook for

May.

The sustained increase in business activity apparently is having

an expansionary impact on hiring plans of area firms.

Throughout the past

twelve months, more area manufacturers were laying off workers than were

hiring them.

The latest check of area manufacturers indicates, however,

that for the first time in a year the number of firms actually adding to

their payrolls equals the number cutting back.

District manufacturers are optimistic also about the longer term

outlook.

More than 80 percent of them foresee the economy expanding half

a year ahead.

As a result of this anticipated expansion, over 40 percent

of the industrialists plan to add to their payrolls by the end of the

summer—triple the number hiring now.

However, this optimism apparently

is having little effect on spending plans for new plant and equipment.

While 20 percent plan to increase investment outlays during the next six

months, 25 percent plan decreases.

The remainder expects no change.

Retailers in the area are "cautiously optimistic" about the

consumer.

One large department store reports that home furnishings have

begun to pick up after months of sluggishness, but the consumer remains

price conscious.

For example, bedroom suites in the $400 category are

moving while those in the $500 to $600 range are not.

Small televisions

and radios, rather than the larger and more expensive models, are selling

well.

Clothing items with substantial markdowns sell easily, while higher

price items move slowly.

Consequently, one larger retailer from a "quality

store" indicates sales promotion will be bargain oriented.

He won't drop

higher price lines, but he'll emphasize sale-price items.

Businessmen in general are still uneasy about stock building.

Retailers especially seem reluctant to build inventories.

One director,

who is a manufacturer, says that this cautious attitude also applies to

wholesalers as well as manufacturers.

Most of the banks report some modest firming in loan demand, but

they do not know how much of it relates to a pickup in economic activity

and how much is explained by the midmonth tax date.

still report overly plentiful supplies of funds.

remains knowing what to do with them.

All banks, however,

Their major problem

There is a growing division of opinion

among local banks about the trend of long-term rates for the rest of the

year.

One group thinks that modest progress on the inflation front and

a pickup in the economy spells higher rates toward the end of the year.

The other group counts on the need for an adjustment from present rate

spreads and a lessening of inflationary expectations to bring some further

reductions in long-term rates.

As far as the prime rate, one or two

bankers thought that even though there was a modest pickup in loan demand,

the recent increase was premature.

Bankers still are concerned about the quality of credit and the

possibility for substantial loan write-offs, but they are increasingly

hopeful that a reviving economy will bail some of these loans out.

FOURTH DISTRICT—CLEVELAND

Recent evidence indicates there is some expansion in economic

activity in the Fourth District, but the underlying trends remain

difficult to assess.

The recent increase in the pace of business activity

in most areas of the District was largely the result of the post-strike

auto rebound and the steel inventory buildup, although recovery in

residential construction continues to be strong.

There are signs that

the rebound in manufacturing that began last year, after settlement of

the auto strike, may be losing momentum.

Demand for labor remains

sluggish, and there has been no improvement in unemployment in recent weeks.

Our directors report signs of improvement in certain phases of business

and, in general, have become cautiously optimistic about the near-term

business outlook.

Our latest survey of District manufacturers indicated further

improvement in business conditions during March, with strength most pronounced

in new orders, shipments, and backlogs.

(Indexes of manufacturing output

also showed continued gains in most metropolitan areas in March.)

Firms

in our survey, however, reported no increase in employment in March, and

they do not anticipate any pickup in employment during April.

Overall

anticipations for April suggest some tapering in the rate of gain in other

key series such as new orders, shipments, and the workweek.

Nonfarm payroll employment in the District decline in February

and March after recording increases for two months.

Manufacturing

employment declined for the second consecutive month in March, while nonmanufacturing employment has been virtually unchanged for the past five

months.

The insured unemployment rate continued to move horizontally during

the first three weeks of April.

Economists in the steel industry informed us that steel shipments

are roughly in line with orders at the present time.

Orders will fall

below shipments from May through July, as the backlog of orders is cleaned

up, however.

During the second quarter, steel production is expected to

make about the same contribution to industrial production as it did in

the first quarter, even though the rate of increase is expected to taper

after April.

The industry economists also reported that manufacturers should

have sufficient steel inventories by the end of July to continue production

for about two months in the event of a steel strike.

Our directors are somewhat more optimistic about the business

outlook than they were a few months ago.

On balance, however, their

optimism is tempered with caution, because they are not sure how much of

the recent improvement in business is "temporary" and how much reflects

a sustained improvement in overall economic conditions.

Directors whose

firms are suppliers to the automotive and residential construction

industries report that buisness activity remains at a high level.

One

director associated with a large paint, glass, and chemical manufacturing

firm reported that sales of fiberglass materials used in tires and general

glass products used in residential construction were especially strong in

recent weeks.

Another director, who is associated with a large tire,

chemical, and industrial products firm, noted that he considered the

recent acceleration of the firm's sales—especially chemical raw materials

and rubber and plastic parts, and accessories—as a sign that other industries

are buying in anticipation of increased production and that he is "a little

more optimistic".

Another director from a sizable building and defense

products firm noted that orders for new captial equipment from utilities

have been stronger than expected and that the firm now has a sizable

backlog of orders in this area.

Other capital goods markets (including

machine tools) are still soft, according to the comments of other

directors.

Directors representing banks in the District mentioned that

deposits, principally time deposits, continue to grow at a rapid pace.

Loan demand, especially business loan demand, has remained sluggish.

One

banker-director from a large bank did note some pickup in loan demand in

the last three weeks, but this seemed to be an exception to the general

trend.

FIFTH DISTRICT—RICHMOND

Diffusion indexes obtained from recent surveys of businessmen and

bankers in the Fifth District indicate general agreement on the following

points:

(1) increased shipments and backlog of orders in manufacturing,

but no change in new orders; (2) further slight improvement in retail sales

including automobiles; (3) very slight improvement in the District employment situation; (4) further advances of prices in the manufacturing sector;

(5) sharp improvement in both residential and nonresidential building activity;

(6) increasing strength in loan demand at District banks; and (7) a

substantially improved outlook regarding future business conditions.

District manufacturers report that their activities are continuing

the improvement which began in February.

They report on balance that

shipments increased in April, while no significant change occurred in the

volume of new orders.

Backlogs of orders increased according to important

producers in such industries as coal, building materials, containers,

fabricated metal products, nonferrous metals, and chemicals.

Retail sales of goods and services improved further during the

past four weeks, according to most reports from District bankers and

retailers.

Bankers' reports also indicate that automobile sales continued

to advance in the District during April.

Most manufacturers and retailers

in the survey report some recent decline in their inventory levels.

Suggestions of an improving employment situation continue to be

made by District manufacturing respondents.

Although few reports of

increasing employment have been received from manufacturing industries,

the number which indicate further declines continues to drop.

The number

of District bankers who report improvement in the employment situation in

their respective areas has increased in the past two months, by comparison

with the last half of 1970 and the first two months of 1971.

Supplies of

available labor apparently continue to be adequate, however, in most parts of

the District, except for certain types of skilled labor.

According to many manufacturing respondents, the backup of

manufacturers' prices noted last month is continuing.

Recent price advances

are reported by manufacturers in textiles, synthetic fibers, chemicals,

furniture, fabricated metal products, and nonferrous metals.

Upward

pressure on wages in manufacturing industries is reportedly continuing;

most retailers and respondents in the services industries also report prices

continuing to climb.

Residential construction apparently continues to advance in the

District at a rapid pace.

The majority of banking respondents in the major

cities of all District states indicate a continuing surge of residential

building.

Bankers also report on balance that nonresidential construction,

which had tapered off since the first of the year, began to recover in April.

The number of banking respondents indicating increased loan

demand rose sharply in April.

On balance, bankers report that demand for

consumer loans and mortgage loans has grown during the past four weeks.

Business loan demand, which had been considerably weaker, is also increasing,

according to a considerable majority of banking respondents.

The recent District survey showed the highest level of respondent

optimism in several months.

Comments received from reporters indicate

that the recent round of relatively favorable business and economic news

is confirmed in the outlook of respondents in the Fifth District.

Comments

from manufacturing respondents indicate some anticipation of increased

production levels in the months ahead, and suggest the possibility that

current plans for the expansion of plant and equipment might be too low.

An attitude of cautiousness continues to characterize many District respondents,

but a quickening undercurrent of optimism is evident.

SIXTH DISTRICT—ATLANTA

While the outlook of businessmen and bankers is still mixed,

confidence appears to be increasing.

A definite upswing in optimism is

reported from various sections of the District, although from some areas

we still get reports that the future pace of recovery is in doubt or

recovery is not widely based.

Reports of employment increases and plant

announcements are becoming more numberous, whereas weakness continues in

such important regional industries as textiles, aluminum, mobile homes,

and phosphate production.

A special survey of leading department stores

throughout the District indicates that sales have been exceeding expectations

and that respondents are more optimistic than at any time in the past

year and one-half.

Because of recent wage settlements and possible strikes

by steel and aluminum workers and longshoremen, inflation fears persist.

Plant announcements include a major urethane plant in Lake Charles;

plants to manufacture water heaters, microwave ovens, gloves, and fire

extinguishers in Alabama; a sewing plant in Alabama; a small appliance

manufacturing plant in Mississippi; a household paper products plant in

south Georgia; and a natural-gas-processing facility in north Florida.

In addition, a Gulf Coast shipyard has received an order for 246 Seabee

barges.

A power company executive reports renewed interest in industrial

and other projects that were postponed earlier.

The trucking industry which transports poultry from Alabama and

Georgia and returns produce is reported to be expanding.

For example,

one carrier with a fleet of thirty refrigerated diesels is buying sixteen

additional trucks and anticipates "all the business he can handle".

In

Florida, port facilities are handling record tonnage, and frozen orange

juice shipments are running 30 percent above a year earlier.

Also, some

increase in operations is occurring at selected military installations;

for instance, Alabama air bases are benefiting from the resumption of full

operations at an air force school and the transferring of a helicopter

school from Texas to Alabama.

The Mississippi test facility is adding

250 employees because of tests of the space shuttle craft engines; an

increase in sales of nylon and dacron polyester products is responsible for

a 200-man employment rise at a Chattanooga chemical plant.

Housing construction is reported strong in several areas of the

District.

A large residential development—covering 1,000 acres and

planned for a community of 7,000—has been announced in Orlando.

A huge

complex, including office buildings, a hotel, and retail shops, is being

planned for downtown Atlanta.

The project, which will not be under

construction for eighteen months, will eventually cost more than $100 million.

However, construction of a domed stadium in New Orleans may be delayed.

Stadium bonds failed to attract any bidders, because some groups are

opposing the stadium in the courts.

The legal -issues cannot be settled

until the state legislature meets, and by that time market conditions may

not permit the sale of these bonds within the 6 percent limitation.

A Research Department telephone survey of department stores

indicates that Easter sales were better than expected in New Orleans,

Jacksonville, and Nashville.

One leading store reported a year-to-year

15 percent gain in sales in the January through mid-April period.

Sales

have been weak in Birmingham, perhaps because of the threat of a steel

strike.

The Atlanta sales picture was mixed, with one respondent reporting

sales stronger than expected but the other reporting sales about as expected.

The survey detected a noticeable increase in optimism among retailers, and

most of the respondents thought that the consumers had "loosened up" and

begun to spend.

There are some notable exceptions to generally more prosperous

conditions in the District.

The mobile-home industry continues to be in a

slump, although some pickup has been reported in recent weeks.

Several

mobile-home plants are reported to have closed in south Georgia, and one

Alabama producer has filed for bankruptcy.

Yet, a site has reportedly been

purchased for a fourth mobile-home plant near Ocala, Florida.

One banker

noted that he is reluctant to lend to mobile-home producers, because he

believes the industry is "shaky", and he expects a consolidation of existing

firms into three or four major producers.

The aluminum industry is also reported to be depressed, although

strike-hedge buying is expected to lift production soon.

Employment at

the Cape Kennedy Space Center has been holding steady, but another sharp

drop in employment is expected unless the center is to play a part in the

space shuttle program.

Textile manufacturing in Alabama is reported weak,

which is evidenced by the recent closing of a long-time sportswear producer.

Four hundred have recently been laid off by a maintenance firm that has

a contract at an Alabama air base.

Three hundred and fifty employees have

been laid off at a phosphate fertilizer plant in Florida.

Because of the

increase in unemployment, a prominent Gulf Coast employer reports that he

is able to get and keep better employees.

There has been some increase in consumer loan delinquencies,

mainly associated with the start-up of bank credit cards.

Inflation remains worrisome.

There is growing concern that the

labor agreement in the can manufacturing industry may be the pattern for

upcoming steel and aluminum industry negotiations.

There is also the

possibility of a longshoremen's strike in October.

Prices of homes in

Miami have risen 100 percent in the past five years, including a 20 percent

rise from the first quarter of 1970 to the first quarter of 1971.

TVA has

hinted that there may be another increase in electric rates—on top of a

23 percent raise last October—when existing coal contracts expire and have

to be replaced with new ones at high price levels.

utility has requested a rate increase.

Another natural-gas

SEVENTH DISTRICT—CHICAGO

A number of important industries have experienced a turn for the

better in the past several weeks.

Retail trade apparently has improved,

and there is some concern for the adequacy of inventories if consumer

demand accelerates.

Prospects for residential construction appear even

stronger than in earlier months, and there is a growing tendency to project

the vigorous picture into 1972.

Capital-expenditure prospects generally

remain unfavorable, but petroleum firms have raised their sights on

investment spending.

Markets for goods are more competitive, and price

increases have been less frequent in recent weeks.

Demand for labor

remains very slow, and unemployment apparently is continuing to rise in

this region.

Crop plantings are ahead of schedule, and larger acreage

is being planted.

Funds continue to pour into savings media, but demand

for credit, other than for residential construction, remains at reduced

levels.

Two recent meetings

of business economists in Chicago sounded

a more optimistic tone than at any time in the past year.

Among the

manufacturers reporting a firmer trend in orders or sales were producers of

building materials, components for industrial equipment other than "heavy

stuff", light and heavy motor trucks, petroleum production equipment,

nonautomotive consumer durables, farm equipment, and meat products.

Reports

on retail trade were more favorable, but the improvements noted have been

modest.

Demand for airline services remains poor, and service is being

curtailed.

Steel shipments have been somewhat less than anticipated,

and order backlogs "probably have peaked".

Demand for most machinery and

equipment, and industrial and commercial buildings, has not improved, and

little hope exists that a significant upswing will occur in the next

several months.

In the Chicago area, demand for virtually all types of workers—

experienced, inexperienced, newly trained, and those with established

skills—is said to be the weakest in "at least a decade".

For some types

of workers such as school teachers, and graduates of technical schools,

the comparison must be pushed back further—perhaps to the late 1930's.

One large university reports that only 25 percent of its seniors have firm

offers of jobs, compared with 85 percent two years ago.

prospect for students is said to be "hopeless".

The summer job

Construction unions

are much more restrictive in issuing job permits to nonunion members,

stating that many of their own members are out of work.

Because of financial

stringencies, many school districts have reduced, or will reduce, their

hirings.

Applications for teaching jobs are extremely numerous.

Enrollment

in many colleges and graduate schools is down this year, and further

reductions are expected for the fall term.

enrollment, of course, is twofold:

fewer teachers are needed, and more

potential students are in the labor force.

hirings, and encourage early retirements.

common than a year ago.

programs.

The effect of reduced college

Even banks have begun to limit

Voluntary quits are much less

As a result, fewer people are in job training

Available jobs are largely in low-paid service positions and

in commission sales work.

Residential construction activity is picking up rapidly in most

areas of the District.

Nevertheless, ample supplies of workers are

available in virtually all building trades.

In the Chicago area, with a

31 percent rise in residential permits in the first quarter, 60 percent were

for apartments, compared with more than 70 percent a year earlier.

Avail-

able sites for new residential projects will become an increasing problem

if the housing boom continues, mainly because of zoning and code restrictions.

Recent municipal elections in Chicago suburban areas favored candidates

opposed to multiple residences, especially low-income housing.

Mortgage

money is increasingly available at lower rates and easier terms.

The

"equity kicker" deals for financing apartment buildings, common in 1969

and 1970, have about disappeared.

Warm temperatures and relatively dry fields have permitted

earlier than normal soil preparation and corn plantings in the Midwest.

As a result, the increase in acreage planted may be even larger than the

4 percent rise expected earlier.

of farm equipment.

Larger acreage may encourage purchases

Demand for farm equipment had been very weak earlier

in the year, but sales are reported to have improved recently.

Farmland

values are reported to be rising moderately again, after leveling off

last year.

loans.

Agricultural banks are experiencing increased demand for farm

Because of rapid deposit growth, bankers hope to expand loans

this year because loan rates (about 7 1/2 percent) are much more favorable

than rates available on investment.

Business loan demand at large city banks remains very slow, and

may have weakened further in the past month.

Nevertheless, the recent

rise in the prime rate was not considered a surprise, partly because

earlier reductions were believed to have been excessive.

Some city banks

are expanding mortgage and construction loan activities.

Savings inflows

continue very heavy at banks and savings and loan associations.

Rates paid

on passbook savings and consumer-type certificates have been reduced by a

growing number of commercial banks in the District, but the large Chicago

loop banks have not reduced these rates and are not expected to do so in

1971.

A significant volume of the inflow of funds to savings and time

accounts represents money that had been invested in bills and similar

instruments.

Recent increases in rates paid on CD's by large banks, and

some extension of maturities, indicate that banks are relying more

heavily on this source of funds as a substitute for Euro-dollars.

EIGHTH DISTRICT —

ST. LOUIS

The upward trend of business in the Eighth District accelerated

somewhat during the past month, according to reports from a group of leading

businessmen.

Retail sales picked up considerably in the week before Easter

and have continued at the higher level.

The construction industry shows

more activity than a month ago on a seasonally adjusted basis and is well

above levels of a year ago.

Although cautious about additional hiring,

employers are lengthening the workweek in many cases and are attaining

increased efficiencies with the current number of employees.

No further

reductions in capital spending are mentioned, and some signs of recovery

in such spending are beginning to appear.

Despite some dry weather in

portions of the District, the overall agricultural outlook is good.

Retail sales rose sharply just prior to Easter in a manner similar

to the pre-Christmas gain.

be moving well.

Clothing, appliances, and other lines appear to

Automobile demand is strong.

Retail inventories have not

been increased, but some respondents indicate that larger inventories will

be required if demand continues at current high levels.

The construction outlook has likewise improved during the past

month.

Gains are now observable in all sectors of the industry, including

public buildings, industrial construction, and all types of housing,

especially lower cost homes which are financed in part through public

assistance.

The residential housing market is soft in St. Louis, where

major wage gains were negotiated by the building trades.

In most other

areas of the District, however, home construction labor is nonunion, and

home building has picked up substantially.

One major industrial construction

firm reports that actual work is still lagging behind expections, but

contract closing, which involve future construction, are well ahead of

year-ago levels.

This firm is in the process of enlarging its staff to

meet this increased demand.

Orders for building supplies continue to

improve along with the construction gains.

The process of investment retrenchment which began last year

has been completed, and firms are beginning to seek new investment opportunities.

One large, diversified firm reports renewed investment plans

in all divisions except one of its minor franchised lines.

Another

respondent is putting additional machinery into use to meet increased

demand.

Some others are adopting a "wait-and-see" attitude until evidence

of an upswing is more conclusive.

Excluding some gains in construction employment, most of the

increase in activity to date has apparently been made with little change

in the number of workers.

A slightly longer workweek and greater pro-

ductivity per worker are indicated.

Even those firms reporting increased

investment do not foresee additional hiring in the near future.

The

outlook for summer employment of students and other part-time workers is

especially dim.

Labor costs are still a major complaint, especially in the

construction industries.

Suppliers of building materials in St. Louis

indicate that competition from nonunion firms in other parts of the county

is causing them to hold prices down, resulting in a profit squeeze.

The rise in business activity in the District is beginning to have

an impact on credit demand.

Loans at most District member banks have

increased somewhat faster in recent weeks than heretofore.

A few banks

have increased their prime rates, although they generally remain highly

liquid.

Savings and loan associations report that liquidity is greater

than desirable but that demand for mortgage money has risen substantially

during the past month.

There are fewer complaints than usual about the current rate of

inflation, but a number of respondents express concern that overly expansive

public policies may again lead to excessive demand and an increased rate

of inflation.

NINTH DISTRICT —

MINNEAPOLIS

The unanimous feeling among directors of this Bank is that retail

sales in this District have improved over the last month, and retailers in

general are more optimistic in their expectations regarding future sales.

Contrary to expectations, credit collection problems among District bankers

and retailers are not any worse than they were a year ago, but wholesalers,

especially in the construction industry, are noticing some instances of

slower debt repayments by contractors.

Loan demand continues to be quite

strong throughout the District, and the general feeling is that it will

intensify.

Commercial banks are not competing aggressively for longer term

CD's.

Without exception, the directors of this Bank report that retail

sales in their areas are above year-ago levels.

A number of explanations

for this fact were given, including such things as the late Easter this

year, seasonable weather throughout the District, and even that last year

was so bad that things had to get better.

Underlying all their comments,

however, was an optimism not expressed earlier this year.

As one director

said, "Retailers are more optimistic now than they have been for some time,

and now they are not whistling in the dark."

There are, however, scattered indications that consumers are

still hesitant about committing themselves to major purchases.

One director

stated that sales of used autos and machinery were very strong while sales

of new autos and machinery were very weak.

In addition, two others said

that new auto sales were weak in their areas.

Contrary to the expectation that the incidence of bad debts would

rise following a prolonged period of contraction, debt repayment problems

in this District are no more prevalent than they were a year ago.

A number

of directors even stated that collections and debt repayments had accelerated

in their areas, primarily because consumers, in their uncertainty, are

trying to clean up old bills instead of buying new merchandise.

In addition,

consumers in the copper-producing areas of the District, who are anticipating

strikes this summer, are trying to minimize their fixed obligations for

this period.

Loan demand, both throughout the District and in most kinds of

loans, is relatively strong, and the general feeling is that it will strengthen

over the coming few months.

One director, who is also the president of a

reserve city bank, stated that business loan demand is still very healthy

and, contrary to his earlier feeling that loans at his bank will drop, he

now expects them to continue rising.

Consumer loan demand has also picked

up along with the rise in retail sales, and mortgage loan demand is described

as being brisk throughout the District.

According to our latest agricultural

credit conditions survey, the demand for agricultural loans is rising more

than seasonally for several reasons, among which are the poor agricultural

income situation, increased intended acreage this year, and a shift into

higher cost crops such as corn this year.

Time deposit growth at District member banks is continuing very

strong and has been running at a 20 percent seasonally adjusted annual

rate since the turn of the year.

The recent growth in total time deposits

has been evident throughout the District and reflects the exceptionally

heavy inflow of consumer-type time and savings deposits.

Large CD's, at

least those at reserve city banks, have remained essentially flat since

the latter part of 1970.

Most District banks are no longer offering 5 3/4 percent on longer

term CD's, and those banks that will still accept them are not advertising

or actively pursuing them.

For the most part, passbook savings rates have

not changed over the past month, although one director was aware of a bank

that had dropped its passbook rate to 4 percent.

TENTH DISTRICT—KANSAS CITY

Economic conditions in the District apparently are continuing

to improve.

Businessmen that were surveyed expressed reserved optimism

about future prospects.

Although sales at retail stores and auto dealers

are somewhat higher than a year ago, much of this optimism is based on

reports of a turnaround in the national economic situation and on surveys

which suggest that consumer attitudes have become more favorable to buying.

Construction activity continues to pace the area economy.

Dry weather has

severely damaged crops in the southern part of the District, but production

prospects remain favorable in most other areas.

The employment situation

is still soft and only modest improvement is expected in coming months.

Loan demand continues to display a slight firming trend at District banks,

and deposit inflows continue strong.

The prime rate increase was generally

followed throughout the District, although some banks delayed their

announcements.

A survey of large retail stores in the District indicates that

retail sales so far this year are slightly ahead of the same period a year

ago.

With Easter late this year, April sales have been quite good and

many retailers said that they were better than expected.

It appears from

the responses that consumers have not begun to increase their buying of

big ticket items significantly.

A couple of stores did indicate that their

furniture sales were very good.

Also, there have been reports that color

TV sets have sold well this year.

Retail sales in Wichita are still poor,

due to the high unemployment in the local aircraft industry.

Stores in

Colorado say that their sales have been very good.

In Oklahoma, despite

reports of increased consumer caution in some areas, due to drought conditions,

retail sales in Oklahoma City and Tulsa were said to be increasing.

among merchants in the District was widespread.

April figures as support for this optimism.

Optimism

Many cited the improved

But as noted earlier, many

drew their optimism from developments on the national level.

that they were heartened by recent consumer surveys.

Some said

One retailer said

that the improved foreign political climate would probably affect consumer

buying attitudes favorably.

No one seemed to expect that there would be

any great surge of buying, but, instead, a gradual increase throughout the

rest of the year.

Auto sales have improved in recent months throughout the District.

Reports on sales in recent weeks are mixed, although several dealers did

report a pickup in momentum.

The happiest dealers are those handling imports.

Buyers still seem to be interested in smaller and cheaper models.

One

dealer reported that a significantly large proportion of cars sold are

cheaper models with less equipment.

Generally, dealers were optimistic

about auto sales in future months.

One dealer said that lower bank rates

on auto loans were starting to help sales.

Again, the expectation is for a

gradual, rather than a rapid, increase in sales.

The drought conditions prevailing in the central part of the

United States have had an effect on District agriculture.

In Oklahoma,

99 per cent of the winter wheat crop is reported to be in poor to fair

condition.

In the hardest hit southwestern part of the state many fields

have been abandoned and grazed out with cattle.

very poor condition.

Native pastures are in

It is also reported that 80 per cent of the dryland

wheat in New Mexico has been lost.

Although some rain fell in these areas

during the past week, the outlook remains bleak unless additional precipitation

is received soon.

Dry soil conditions have also affected parts of Colorado,

Kansas, and Missouri, but losses have not been nearly as great as farther

south. Wyoming and Nebraska have good moisture conditions.

The slight firming in loan demand reported in March appears to

have held at Tenth District banks.

major area of strength.

Construction loan demand remains the

Auto loan demand is also continuing to show strength,

although not as much as would be indicated by auto sales.

parently making unusually large down payments.

Buyers are ap-

Some pickup was reported

in other consumer instalment loans, but not much.

Business loan demand for national concerns remains sluggish.

Some

bankers report that some national accounts have requested larger credit

lines, but have not used them as yet.

to show moderate strength.

Demand from local borrowers continues

The increase in the prime rate was welcomed by

bankers interviewed; it was justified more by deposit rate levels than by

strengthening loan demand.

Deposit inflows continue strong at District banks, considering

seasonal factors.

In March, some banks were anticipating a decline in rates

paid on consumer time deposits and some scattered declines had occurred.

This picture has changed somewhat.

In some cases, those declines that

occurred earlier have been reversed, and rates have firmed.

There is less

talk of declines in rates paid on consumer time deposits; however, such

talk has not disappeared.

In general, bankers continue to expect a gradual

strengthening in loan demand as a result of increased economic activity, and

are reluctant to discourage deposit growth at this time.

ELEVENTH DISTRICT —

DALLAS

Economic activity in the Eleventh Federal Reserve District is

expected to improve moderately between now and the year-end.

This was

the view expressed by a sample of university economists who periodically

write analyses of economic conditions in the region.

Most anticipated

that the pace of overall economic activity would pick up somewhat but

that no dramatic recovery was likely to take place.

They felt that consumer

sentiment would improve, leading to increased consumer expenditures—

particularly for durable goods and housing.

A majority of the respondents

also expected that the increased purchases of housing would be stimulated

by further declines in mortgage rates.

However, most felt that bank lending

rates and unemployment in the District would not decline much, if any,

over the balance of the year.

Moreover, nearly all anticipated that

inflation would persist through the year-end.

A slim majority of the respondents felt that conditions in the

District had improved somewhat as compared with a year ago.

Those who

described economic conditions as being weaker cited the local drought

as a major factor.

However, nearly everyone anticipated that the District

would show some improvement by the end of the year, but very few thought

this improvement would be marked.

All respondents felt that the consumer would play an important

role in the recovery.

Consumer confidence and, consequently, consumer

spending are expected to pick up.

As a result, many anticipated that

retail sales, particularly of durable goods, would increase substantially.

Moreover, consumer demand for housing was viewed as being strong

through the year-end.

Consequently, most felt that construction activity

in the District would continue to rise and be a major source of stimulus

to the economic recovery.

Some thought that a further downward movement

in mortgage rates would bolster activity in the housing market, but these

respondents anticipated that further declines in mortgage rates probably

would be slight (about 1/2 percentage point), bottoming out in the fall.

A few felt this year's low has already been reached.

The outlook for bank lending rates, unemployment, and prices

was less optimistic.

Most felt that bank lending rates would remain

unchanged, or possibly increase somewhat, over the balance of the year.

Similarly, a majority expected that the unemployment rate was likely to

continue at the present level or rise slightly.

And nearly everyone

anticipated that inflation would remain a problem through the year-end.

A few thought there would be no further decline in the rate of inflation

by the end of the year.

At present, indicators suggest little improvement in District

economic activity recently.

For March, the Texas industrial production

index and nonagricultural employment data for the Eleventh District states

showed virtually no change from February.

The component for durable goods

in the production index continued at a level 10 percent below that for the

corresponding month a year ago, due primarily to cutbacks in defense

industries.

Oil production in Texas is expected to fall by 1.4 percent

in May, as the Texas Railroad Commission reduced oil allowables because of

a seasonal slackening in demand and an improvement in international

petroleum availability.

But other District states kept their allowables

at the high levels prevailing for the last several months.

Drought

conditions continue to have a major impact on the agricultural economy of

the western areas of the Eleventh District.

The Texas range condition

was the lowest ever reported for April 1 since records were begun in

1923.

herds.

As a result, farmers and ranchers have begun culling their livestock

Weekly department store sales for major metropolitan areas in

the District continued to rise thus far in April.

TWELFTH DISTRICT —

SAN FRANCISCO

There has been no major change in the pace of economic activity

in the view of businessmen and bankers in the Twelfth District.

The

economy is in a period of gradual expansion, but the general outlook is

one of caution.

This caution is reflected in reports that no pronounced

rebuilding of inventories is under way.

Businessmen seem to be awaiting

a stronger rate of expansion before committing themselves to carrying

heavier inventories.

Housing and related forest product industries are showing the

most consistent expansion.

Housing construction, especially residential,

is to increase, and there also are reports of a more active market in sales

of existing homes.

Part of this activity is due to lower mortgage rates.

On the other hand, vacancies are high in some areas for some industrial

property.

One banker in southern California notes a significant vacancy

factor in industrial and commercial properties.

There is little evidence that businesses are rebuilding their

inventories to any degree.

This is the general feeling of our Head Office

and Branch directors who were asked to comment on this question.

There

are exceptions but, overall, their impression is that businesses are

continuing to hold inventories at present levels.

The one major exception

is in steel and related production, where the possibility of a strike is

generating heavier orders.

Inventories of building materials and some

kinds of lumber also are being increased in expectation of a higher rate

of construction.

Retailers seem to be increasing inventories only moderately,

and auto dealers have completed their post-strike restocking.

In summary,

optimism about the general economy is not appearing in attitudes about

inventories.

Retail sales are rising at a moderate pace.

Major chain stores,

in particular, are doing quite well in most areas through heavy promotional

efforts.

In Arizona and eastern Washington, average increases of

12 to 20 percent over the same period of last year are reported.

Despite

these exceptions, consumers are cautious in their buying and retailers

expect no major jump in consumer spending.

Reports from agricultural sections of the District indicate a

satisfactory level of prices.

Cold storage facilitates for local fruits

and vegetables are being expanded in eastern Washington.

are expected in Idaho and Washington.

Good wheat crops

Similarly, prospects for agriculture

in the central valley of California have improved, as prices have risen

for most crops and dairy products.

Idaho agriculture does have a problem,

however, in the large carry-over from last year's potato crops.

Much of

this is still in storage, and potato prices are expected to be lower.

Bankers continue to devote efforts to expanding their loans,

especially commercial and industrial loans, as their deposits have continued

to rise.

Rates paid on time and saving deposits show considerable variation

from bank to bank.

accounts.

Some banks have kept the 4 1/2 percent rate on passbook

Usually, these have been smaller banks, although some quite

large banks have maintained their rates.

Some banks report a shift from

time CD's into consumer-type savings instruments, and they have increased

slightly their CD rates.

Demand deposits are higher for most banks.

Savings and loan associations are also gaining funds and, in consequence,

mortgage money is readily available in most parts of the District.