Beige Book
CONFIDENTIAL (FR)
CURRENT ECONOMIC CONDITIONS BY DISTRICT
Prepared for the
Federal Open Market Committee
by the Staff
July 14, 1976
TABLE OF CONTENTS
SUMMARY page i
First District-Boston page 1
Second District-New York page 4
Third District-Philadelphia page 8
Fourth District-Cleveland page 12
Fifth District-Richmond page 16
Sixth District-Atlanta page 19
Seventh District-Chicago page 23
Eighth District-St. Louis page 27
Ninth District-Minneapolis page 30
Tenth District-Kansas City page 33
Eleventh District-Dallas page 36
Twelfth District-San Francisco page 39
SUMMARY*
[Asterisk: Prepared by the Federal Reserve Bank of San Francisco.]
The prospect is for a sustained economic expansion in the last half of
the year.
Although the majority of the Districts report that
activity
moderated in the second quarter, the outlook for the rest of the year is
optimistic.
Retail
sales,
although
somewhat
weaker
this
quarter,
are
expected to pick up.
Manufacturing output shows little sign of weakness
and
hampered
it
is not
Generally
inventories
anticipated.
tricts
but
being
at
are being
this
time
by
capacity
kept under control
limitations.
and no build-up
is
Residential construction continues to recover in most Dismultiple-housing
and
commercial
construction
remains
weak.
Despite some problems with weather conditions, agricultural prospects are
good.
Demand for business loans continues sluggish in most Districts.
The growth of retail sales slowed somewhat in the second quarter in
most regions.
This slowing is expected to be temporary and retailers are
optimistic about prospects for the rest of the year.
Soft goods sales are
generally good but major appliances exhibit more variation in demand.
Some
Districts (Chicago, Minneapolis) report weakness in appliance sales but
others (Philadelphia) are experiencing good demand.
turers
Appliance manufac-
in the St. Louis District are experiencing a slowing of orders.
Expenditures on tourism are high in most vacation areas (Atlanta, Philadelphia, Minneapolis).
Consumer spending for automobiles is high, and larger and intermediate sized models are in great demand.
car sales.
Some weakness is evident in small
Chicago reports that the smallest auto producer which concen-
trates on small models has stopped assembly of 1976 models earlier than
usual, while the larger manufacturers are pushing production of their large
cars.
At present, the strike of tire manufacturers is not causing problems
for car manufacturers.
Manufacturing
activity generally continues to expand.
Demand for
steel has increased (Chicago, Cleveland) and order books are full for flat
rolled steel.
Farm equipment sales show a mixed pattern.
In Chicago,
sales have exceeded expectations, but in Atlanta they are described as
poor.
Aircraft production prospects have improved primarily because of
increased government contracts (St. Louis, San Francisco).
The pattern is
mixed for machine tools; Cleveland reports increased orders but Boston and
Atlanta manufacturers' sales remain low.
For most industries, operating rates are below capacity.
being increased by many producers.
Capacity is
Philadelphia notes that one-third of
its survey respondents plan to increase their plant and equipment expenditures.
Producers of aluminum, glass containers, and certain plastics are
approaching full capacity.
Shortages are not widespread although manu-
facturers may face problems in obtaining sufficient natural gas supplies
(Chicago, San Francisco).
Gasoline is not expected to be in short supply
this summer, but New York reports a forecast of tighter supplies later in
the year.
No major build-up in inventories is in prospect.
Most retailers and
manufacturers regard their inventories as adequate, however in the Richmond District, 70 percent of retailers surveyed thought their inventories
were excessive.
stocks
despite
Retailers are following a cautious policy in rebuilding
an
optimistic
sales
outlook
(Boston,
New
York,
Phila-
delphia, St. Louis, San Francisco).
Residential
construction
is recovering
at a moderate rate in most
Districts and it is described as good in the Kansas City District. Some
concern is expressed about the effect of higher prices dampening the growth
of sales (St. Louis, Minneapolis).
Multiple-housing and heavy construc-
tion remains weak; Dallas reports the greatest weakness
is in highway
construction.
The
Drought
agriculture
conditions
outlook
have
for
ended
most
in
crops
several
appears to be
Districts
improving.
(Minneapolis,
St.
Louis) and yields are expected to be good while prices will be firm.
St.
Louis and Atlanta note that cotton acreage is being reduced because of wet
weather.
Cattle prices may recover later this year, but they have been
falling recently.
feed (Dallas).
Low prices have resulted in less cattle being placed on
Kansas City reports excellent prospects for the wheat crop
in its District, although nationally the crop should be lower than in 1975.
Crops such as soybeans and corn are likely to be larger than last year
according to Chicago, St. Louis and Atlanta.
Commercial banks are experiencing sluggish business loan demand and
little strengthening is expected.
strong increases are reported.
relatively
strong.
The major exception is Kansas City where
Consumer lending in the Boston District is
Boston and New York
banks
are experiencing
strong
competition from savings institutions whose deposit-accepting and lending
powers have been increased. Cleveland and Kansas City savings and loan
associations report strong mortgage loan demand.
First District -- Boston
The New England directors are optimistic about future business conditions, and they report that business activity is good.
director
is
exuberant
because
the
overall
Commercial bank loan demand remains weak.
Nevertheless, no
expansion
has
been
modest.
June retail sales have recovered
from May's slump, but retailers, chastened by experience, are now
ebullient.
less
The lumber and groundwood paper firms are oversubscribed, yet
machine tool manufacturers, metal forming firms, and linerboard producers
are confronted by capacity in excess of needs.
utilizing
90
percent
of
capacity.
Other
White paper producers are
industries
generally
report
capacity utilization at 85 percent.
Business and consumer loans at commercial banks have been sluggish
throughout the first half of 1976, and there is no indication that a surge
in demand is imminent.
tions
are quite
Banking directors have noted that thrift institu-
active
in courting
loan customers,
both
business
and
consumer, when regulations permit.
After a disappointing experience in May, retail
track in June.
sales are back on
Volume is not exceedingly high, but it is consistent with
plans made earlier in the year.
One director stresses that part of the
problem in May can be attributed to unrealistic planning; too much was
expected from tax refund checks.
level of inventories.
Retailers are still concerned about the
They are optimistic but less enthusiastic.
Saw mills and paper mills either are producing at full capacity or
anticipate reaching capacity by the fall.
orders, but the
initiatives.
industry
White paper
Saw mills cannot fill current
is expecting softer prices due to West Coast
(business
forms, duplicating
paper,
magazine
stock, etc.) production is nearing capacity, and if the Boise Cascade and
Weyerhauser strikes continue much longer, the remaining producers may be
oversubscribed.
In any case, summer is a slow season and fall business is
expected to tax industry's ability to produce white paper.
Ground wood
paper (newsprint, etc.) is mostly imported from Canada, but U.S. mills are
at full capacity.
Linerboard (cardboard) is at 85 percent of capacity, but
the cyclical nature of orders and the European recovery are expected to
generate enough business by September to justify full production
duling.
Although the paper industry is planning marginal
sche-
additions to
capacity, no major investment projects will be considered in the absence of
significant price increases.
Machine tool orders have shown no encouraging signs in recent weeks,
and the ebbing
backlog
is threatening
production
cutbacks.
Producers
speculate that capital goods users' demand has not "heated up" and that
caution is widespread.
Professors
Eckstein,
comment this month.
Houthakker,
and Samuelson were available
None advocated a change
for
in the long-term monetary
growth targets, although each gave slightly different reasons.
The latest
Data Resources, Inc. forecast is based on monetary growth in excess of the
upper limit of the current target range; it also implies real growth of
less than 6 percent and significant increases in the Federal funds rate.
While Eckstein admits that the errors in such forecasts are too large to
draw precise conclusions, he argues that it would be foolish to lower the
upper
end
of
uncertainty.
the
target
range
away
from
the
center
of
the
zone
of
Samuelson advocates small, frequent policy shifts in both
directions depending on the nature of the incoming data.
The data over the
last month or two suggest somewhat more weakness in late 1976 and 1977,
although not a growth recession.
Samuelson feels it would be a political
and economic mistake to aim for a 4 to 5 percent real growth rate over the
next several quarters.
Weighing both the need for higher real growth and
the tendency for inflationary pressures to increase in the later stages of
a recovery, Samuelson thinks policy should become
sionary —
cates
slightly more
expan-
he welcomes the recent declines in short-term rates and advo-
another
quarter
of
the
same
announced
monetary
growth
targets.
Houthakker concurs with the consensus opinion of real growth of 4 to 5
percent
over
present rate.
the
next few
quarters
with
inflation
remaining
near
its
He has been encouraged by developments on the labor front
and less encouraged, but not alarmed, by the increases in raw materials
prices.
He wants no further policy stimulus until the rate of inflation
starts to recede, and he continues to favor monetary growth of about 5
percent with no change in the targets.
(Eckstein, incidentally, commented
that the DRI industry experts were favorably impressed with the Board's new
capacity utilization indexes.)
Second District —
New York
The economic recovery in the Second District continues to lag behind
that of the rest of the nation, but recent developments have not materially
altered the assessment of District directors and business leaders who were
recently questioned about the economic outlook.
Merchants do not appear
overly concerned by the softening of retail activity, which they regard as
temporary, but they are generally following tight inventory policies.
On
the financial front, business loan demand continues to languish in New York
City, although a few directors reported scattered evidence of a pickup
outside of the city.
Commercial banks in New York have begun to respond to
the challenge of checking accounts at mutual savings banks by eliminating
or lowering checking fees.
Consumer spending in this District remained sluggish overall in June,
although there were mixed reports of an upturn.
The president of a major
pharmaceutical concern reported a slowdown in some consumer markets in May
and June.
The controller of a major New York City department store also
reported that sales continued weak in June.
In western New York state, the
Buffalo directors found little indication of any significant increase in
consumer
spending
except
for
automobile
sales.
On the other hand, a
Rochester retailer found June's sales, though soft, stronger than May's.
Many stores, in an effort to limit inventory accumulation, have begun to
mark
down merchandise
prices
earlier
this year
than
usual.
In
this
connection, a senior official of a nationwide chain specializing in apparel
and other soft goods said his firm planned June and July markdowns that are
greater than normal.
Beyond their cautious
inventory policies, retailers do not appear
overly concerned by the softening of sales activity and have not altered
their
fundamental
assessment
of
the future.
Respondents believe
that
consumer spending will pick up again in coming months, but do not expect an
upsurge as strong as that experienced early in the year.
Echoing this
view, the president of the pharmaceutical
the
firm discounted
downbeat
findings of recent consumer confidence surveys, arguing that they have no
predictive value but merely confirm current market conditions.
In the view
of Buffalo directors, consumer confidence remains favorable as inflation
decelerates and real income rises.
Outside of the retail business sector, most other respondents did not
appear concerned over inventories.
The president of a large distributor of
electric equipment said his company's inventories were "in great shape."
The treasurer of a metal-fabricating company reported that his once massive
inventory overhang had been eliminated and that overall inventories were
now "just about at optimal levels."
his firm's
An economist for an oil company felt
inventories were generally in a normal range, with
gasoline
stocks being built up in anticipation of future tightness.
On the outlook for wage pressures, directors of the Buffalo branch
felt that demands for wage increases have moderated somewhat.
The presi-
dent of a large utility reported that his company is experiencing record
low job turnover and felt that this may allow him to break out of the
national pattern of pay increases.
aggressive wage demands of unions.
Respondents, however, remained wary of
One director, who is associated with
the automotive industry, felt that the relative moderation of wage demands
in that
industry was due to the fact that pressures for
increases were largely behind us.
of
his
work
force
pay
An official of a nationwide retail chain
termed the wage situation in his industry as "stable."
fraction
catch-up
unionized,
he felt
With only a small
that the
abundance
of
unskilled workers eliminated economic pressures to raise wages.
Surveying the financial scene, business loan demand in New York City
continues to languish and respondents do not see signs of a turnaround.
However, the chairman of a major New York City bank indicated that there
were signs of recovery in loan demand at some rural
outside of the central money markets.
in central
parts of
the
banks
In New York State, mixed evidence on
this point was offered by various directors.
flat
and regional
One reported loan demand was
state, while another cited an
incipient
recovery in the Binghampton area.
While New York
City loan demand remains sluggish, competition for
demand deposits has developed as a result of mutual savings banks bidding
for
commercial
savings
banks
deposits.
bank
in
customers.
New
York
State
Recent
to
legislation
issue
non
now permits mutual
interest-bearing
demand
A trade association for these thrift institutions indicated that
as of the end of June three-fourths
members) were offering these accounts.
of
its membership
(84 out of
118
In the few weeks that the accounts
have been available, deposits have grown rapidly and already exceed $100
million.
In response to this rapid growth and aggressive marketing by
savings banks, commercial banks have begun to eliminate or substantially
reduce checking charges.
While the regional recovery generally continues to lag the national
economy, there were some encouraging developments
ployment situation.
in the District's
em-
The New York State unemployment rate (not seasonally
adjusted) declined 0.6 percentage points to 8.9 percent in May, the first
time in 30 months that it was lower than a year earlier.
In Buffalo, where
joblessness has persistently been the worst in the District, the unemployment rate fell from a high of 12.1 percent in March to 10.4 percent in May.
This is also well below its 11.5 percent rate of May 1975.
After holding
steady at 10.7 percent in March and April, the New York City unemployment
rate fell to 10.1 percent.
This improvement is somewhat illusory, however,
since it was caused less by an increase in jobholders than by a reduction
in the work force.
Indeed, New York City's recovery from the recession has
fallen further behind that of the nation.
May was 3.4 percentage points
January
this
difference was
higher
only
2.6
The city's unemployment rate in
than the national
percentage points.
rate, while
in
Of the five
downstate counties surrounding New York City, each registered improvement
in the jobless rate, but only one had a rate below the national average.
Third District -- Philadelphia
Economic activity in the Third District is still expanding.
sales
have
picked
up
after
a period
of
softness,
and
Retail
conditions
in
manufacturing have improved, although the pace of expansion in this sector
is slower than last month.
fourth
month
fractionally.
June.
tic.
in
a
row,
Employment
while
new
in manufacturing
orders
and
is up for
shipments
are
the
down
At the same time, inventories are basically unchanged from
For the longer term, both retailers and manufacturers are optimisBusinessmen indicate that prices continue to rise but no dramatic
movements are evident.
South Jersey shore resorts report a good season so
far and are bullish about the rest of the summer.
business
loan demand
Bankers indicate that
is still soft but are not yet ready to make price
concessions to generate additional volume.
Manufacturers
responding
to
this
month's
business
outlook
survey
report that business is better although the improvement is less widespread
than
in June.
Close to one-third of the executives surveyed
indicate
improvement in overall business conditions compared with two-fifths
porting gains last month.
and
inventories, which
New orders and shipments are down fractionally,
declined
a bit
essentially unchanged from that time.
manufacturing
re-
continues to improve.
last month, are reported to be
On the "plus" side, employment in
The factory workweek is marginally
longer this month, and increases in work forces are reported by 19 percent
of the firms polled.
This is the fourth month in a row in which job gains
have been recorded.
Despite the current weakness
in a few
indicators, the outlook
manufacturing for the next two quarters is optimistic.
polled,
3 out of 4 project a higher
in
Of the businessmen
level of economic activity by the
beginning of 1977.
Specific gains are anticipated in new orders, ship-
ments, and employment while inventories are expected to grow only slightly
from present
levels.
Increases
are planned
in spending for plant and
equipment by one-third of those surveyed -- about the same proportion of
respondents as last month.
On the price scene, manufacturers report paying and receiving higher
prices this month.
Better than half of the executives
in the
current
survey report paying more for their inputs, and 1 out of 5 indicates higher
prices for outputs.
Over the next half year, 86 percent expect to be
paying more for their supplies and nearly as many anticipate higher prices
for their finished products.
upward
trend
in prices
with
In the meantime, retailers report a gradual
movements
characterized
as
"evolutionary
rather than revolutionary."
Area retailers report that sales have picked up after a brief period
of softness.
Sales gains are put at 10 percent above year-ago
levels.
Durable goods are reported to be selling well while soft goods are "holding
their own."
Major appliances, auto accessories, and sporting goods are
mentioned as strong sellers.
seasonal
One merchant indicates a good selldown of
items, but another notes excess stocks of seasonal soft goods,
especially sportswear.
Despite the recent period of weakness, retailers
remain optimistic for the rest of this year.
As one merchant puts it, "We
see no reason to overhaul our optimistic forecast for the second half since
the basic factors promoting strong consumer spending are still
present."
In addition, there are no reported changes in any buying or ordering plans.
According to one retailers, "We expect strong demand down the road, so we
don't want to overreact to a temporary lull in sales thereby ending up with
shortages a few months out."
Contacts at South Jersey shore resorts report that the early part of
the summer has been as good as, or better than, the same period last year.
Bicentennial visitors, especially to Philadelphia, were expected to spill
over
to
the
shore
areas
and
provide
an added
boost
to business,
but
contacts indicate that this has not yet happened to any significant degree.
The prospects for the rest of this reason are favorable.
from potential
vacationers
are reported
to
be
up from
advance bookings for August are reported to be high.
whole,
shore
officials
feel
that
with
good
Inquiries
last year,
and
For the season as a
summmer
weather
business
activity will exceed the relatively strong performances of last year.
On
top of this, any additional business from Bicentennial visitors will be, in
one contact's words, "just icing on the cake."
Area bankers continue to report that loan volume is flat.
Auto and
credit card loans are moving upward at some banks, but business loans are
labeled "basically unchanged" by the majority of bankers contacted.
Most
bankers indicate that current loan volume is below their forecasts made
last fall.
For example, one executive at a $3 billion bank notes that
loans at his bank
Despite
this
are running
weakness,
there
$200 million
are
no
reports
below
on
the expected
price
level.
concessions
on
business loan terms.
For the longer term, bankers continue to feel that loan volume will
pick up gradually in the third quarter and gather momentum in the fourth.
However, one banker feels that for most of the second half of 1976 the
softness in business loans will continue since prime borrowers can bypass
banks by selling their own notes on favorable terms.
Another contact feels
that banks may step up their efforts if loan demand doesn't improve.
now, we'd
rather
sweat
it out
than get
situations by making price concessions.
locked
into some
"For
unprofitable
We take this position because we
feel that demand will materialize.
If it doesn't, however, we'll see much
more aggressive action on the part of the banks in the second half of the
year to boost loan volume."
Fourth District -- Cleveland
Activity in the Fourth District is marked by slowing gains in manufacturing, some revival
goods.
in retail sales, and spotty recovery in capital
Directors and other respondents still report no shortages nor are
any expected in the near future, although supplies of some types of steel,
plastics and packaging materials have tightened.
institutions
have
slowed
sharply,
and
Deposit inflows at thrift
expectations
are
that
mortgage
interest rates will rise unless deposit growth strengthens.
Retailers
declines.
report
a
pickup
in
June
sales,
following
two
monthly
Although they view the revival with some skepticism, they remain
cautiously optimistic that near-term prospects for consumer spending remain favorable.
A director associated with a major national retail chain
said orders placed by department stores are reportedly very high, but a few
retailers apparently have lowered their commitments for future delivery.
An economist associated with a major retailer is skeptical about the June
recovery because of the spotty,nature of the pickup (apparel and soft goods
still weak, furniture sales strong) and the need for sales promotions to
induce consumer response.
He expects sales gains will not be as large as
he estimated a few months ago.
In contrast, an economist with a large
producer of major appliances views the recent decline in retail sales as
temporary and expects a second wave of rapid expansion later in 1976.
He
attributed the spring slowdown to emerging price resistance by consumers,
flattening in housing starts and an ending to the effects of tax cuts early
in 1975.
Recovery
in capital
goods remains mixed.
Two
large producers
of
machine tools report orders in recent months have exceeded shipments for
the first time since mid-1974.
Heavy-duty truck sales picked up last
quarter
from
industry.
near
trough
lows,
according
to
a major
supplier
in the
A producer of earthmoving equipment for mining, construction and
logging industries continues to lay off workers and will suspend operations
for at least a month over July and August for lack of orders.
Another major
capital goods producer, where orders so far in 1976 have risen only about 3
percent from 1975, reports inquiries have increased, indicating a step-up
in orders later in 1976.
are
below
last year's
That firm's capital spending plans for this year
outlays.
Its major
capital
investment
program
includes purchasing a mining company as a hedge against expected rising
prices for basic materials.
Projections
of a high rate of
inflation,
relatively slow growth in economic activity, and adequate capacity in its
industry are among the reasons cited for its conservative spending plans
over the next few years.
his company's capital
previously
A director with a diversified firm also indicated
spending for
anticipated,
but
can
1976 will be considerably
be boosted quickly depending
less than
upon
the
strength of customer demand.
There is yet little indication of shortages or bottlenecks in any of
the key manufacturing industries in the District, although steel, plastics
and packaging
industries are tight
in some product
lines.
Major steel
producers in the District report order books for flat rolled products are
full for the third quarter.
One mill apparently turned away some business
that was later placed with other domestic sources.
Demand for other steel
products, such as plates, structural steel and pipe, remains weak.
Steel
operations will drop less than usual for the summer months; operations will
likely remain close to 90 percent of capacity, except that some mills may
temporarily shut down for needed repairs.
One of the largest producers
does not expect to boost capital outlays until 1977.
A director described the supply of raw materials as adequate for the
near term.
Coke and iron ore are potential sources of problems for steel
producers.
One steel economist expects no shortages of raw materials this
year, but said a coke shortage may surface in 1977 because of environmental
constraints.
Another economist said that inability to meet environmental
standards may require his company to shut down ore mines
in Minnesota.
Three domestic steel producers and a prominent ore producer announced joint
plans to sharply boost pellitized ore capacity, but production would not be
available until late 1979 or early 1980.
The 2 1/2-month-old rubber strike is still not expected to shut down
the auto industry, according to an economist associated with a major tire
producer.
The rubber industry continues to operate at about 50 percent of
capacity but is expected to operate at 100 percent for at least a year
following contract settlement.
Contract talks appear deadlocked, but he
pointed out that loss of medical, life insurance, and accident benefits,
which expire next week, might speed up settlement.
Supplies
of
several
types
of
nondurable
goods,
including
food,
packaging and paperboard, are judged to be adequate but supplies of glass
containers and plastics are tightening.
A director remarked that capacity
in the food processing industry is adequate.
Glass container producers are
expected to operate close to capacity in 1976, although supplies of these
containers
are described
as tight
but
not
critical.
No
shortage
is
expected in 1976 or 1977, in part because of the substitution of metal for
glass containers.
The paperboard industry is operating at about 91 percent
of capacity, well below the 1974 peak, but supplies are expected to tighten
as
the
industry
approaches
100
percent
operations
later
next
year.
Capacity additions in packing and paperboard industries in the last few
years have been small because of the high cost of building new plants.
Polyvinyl
operating
chloride
at about 90
is
in
percent
tight
of
supply.
effective
percent in the first quarter of 1976.
One
major
capacity
producer
is
compared with
80
Effective capacity of the industry,
although higher than during the peak in 1973-1974, has been reduced because
of environmental constraints.
Sources associated with the industry expect
no shortages such as were experienced during the last peak.
Financial
seasonal
to
officers
associated
larger-than-seasonal
with
slowing
Mortgage loan demand is described as heavy.
savings
of
and
deposit
loans
inflows
report
in
a
June.
The view of two officials is
that mortgage rates will rise unless demand softens or deposits grow as
rapidly as they did earlier in 1976.
Business
directors.
loan demand at banks
is described as flat to weak by two
A director with a large bank attributes continued weak loan
demand to corporate use of long-term debt and equity markets, the sluggish
pace of capital spending and tight inventory control by business firms.
Fifth District -- Richmond
Responses to our latest survey of Fifth District business conditions
suggest a decided pause in the current expansion.
Manufacturers' reports
suggest a decline in new orders in June, with shipments apparently showing
no change and backlogs of orders falling off.
Inventories of finished
goods were reported to be larger than a month earlier and current levels
are considered excessive by nearly one-third of our respondents.
Despite
this apparent slackening in the rate of advance, District manufacturers
remain
optimistic.
Expectations
of
continued
gains
in
the
level
of
business activity are not quite as widespread as in some recent months, but
over one-half of our manufacturing respondents expect further improvement
over the next six months.
there
are
no
signs
of
Beyond some normal
any
difficulties
availability of materials and supplies.
simliar pattern of activity:
lengthening of lead times,
arising
with
respect
to
the
Reports from retailers indicate a
sluggish- sales, a relative decline in sales
of big ticket items, and further expansion of inventories.
Large District
banks report only nominal growth of commercial and industrial loan volume
in recent weeks.
In the agricultural sector, the general condition of most
major field crops in the District has improved in recent weeks in response
to much-needed rain and warmer weather.
Of manufacturers responding to our survey, one-half report no change
in shipments
over
divided between
the past month.
reporting
The
remaining
one-half
increases and decreases.
are
evenly
Meanwhile, over 40
percent indicate reduced volume of new orders and over one-third report
declines
creased
in backlogs of orders.
inventories
of finished
apparently unchanged.
More than one-third also reported ingoods, while
stocks
of materials
were
Inventory levels are now considered excessive by
nearly one-third of our manufacturing respondents, while nearly as many
view current plant and equipment capacity in excess.
Nonetheless, employ-
ment continues to rise in most sectors of the District economy, and reports
of higher prices are widespread.
Among individual industries textile, apparel, chemical, and furniture
manufacturers seem to have been typical, experiencing some weakness in the
volume of new orders.
Respondents from the primary metals industry report
little change from a month ago, while producers of machinery and equipment
showed some gains in this area.
furniture
and fixtures,
respondents consider
respondents
in
while
current
virtually
Inventories are considered excessive in
in most
other
industries
levels about right.
every
industry
a majority
There are
surveyed,
of
individual
however,
who
feel
current stocks are excessive.
Citing
cooler
than
usual
weather
and
a general
lack
of
consumer
confidence, retailers responding to our survey report marginally weaker
sales in June and the first relative decline in sales of big ticket items
since December.
Reports suggest a continuing spate of bargain hunting, but
with consumers retaining an eye for quality.
Rather widespread inventory
accumulation and the recent sluggish sales pace have left over 70 percent
of our retail respondents with what they feel are excessive inventories.
Price increases at the retail
than
in recent months,
level are reported with greater frequency
although most
prices, received or paid, since May.
respondents
report
no change
in
Retailers remain optimistic about the
level of business activity, particularly with respect to sales in their own
firms.
Nearly 60 percent
expect
further
improvement
in the
level
of
activity nationally and in their individual market areas over the next six
months, but over 80 percent expect sales in their own firms to improve over
that time period.
The availability of supplies
presenting
any
serious
problems
and materials
in the
Fifth
does not appear
District.
Most
to be
of
our
contacts in industry report at worst some lengthening of lead time, but
even that is considered normal.
Most firms continue to report that their
orders are being met promptly and that they anticipate no difficulties in
meeting orders for their own products.
Only one respondent, an apparel
manufacturer, reported operations being hampered by the performance of his
key suppliers.
One manufacturer mentioned the rubber strike, which he
feels would adversely affect operations by the end of July.
Despite seasonal strength in business credit demand from agriculturerelated industry, total C&I loan volume at large District banks has shown
only nominal growth in recent weeks.
According to area bankers, continued
cyclical weakness in business loans is due to two basic factors.
First,
local industry reaction to the recent slowing in nondurable sales has been
swift
and conservative.
In North
Carolina,
for
example,
the
textile
industry is said to have quickly tightened production to forestall unwanted
inventory accumulation.
Second, there is almost complete lack of term loan
requests for purposes of business fixed investment.
volume is still below desired levels.
This
revolving
loans.
and direct
loan
Consumer lending is still advancing,
but not as rapidly as in recent months.
credits
Consequently,
installment
seems to hold for
Large
District
both
S&L's
generally report that the demand for mortgage funds remains very strong.
In the agricultural sector, earnings from farm marketings continue to
run above a year ago.
But the 2 percent
January-April
smaller
nationally.
was
much
than
the
gain
in the District
10 percent
increase
during
recorded
The corn outlook is especially promising, with prospects for a
record harvest
in North Carolina.
However, excessive soil moisture
causing problems for crop farmers in many areas of South Carolina.
is
Sixth District -- Atlanta
The
southeast's
economic
recovery
continues,
spending, tourism, and some agricultural industries.
led
by
consumer
A number of directors
perceive a recent leveling tendency but retain a positive view of future
prospects.
be slow.
None doubt that current progress will continue, although it may
Retail sales gains tapered off in some parts of the region but
have resumed in many areas.
Tourist outlays remain a key area of strength.
Bright spots are numerous in southeastern agriculture.
opments
present a mixed pattern.
economic growth.
Purchasing
agents
Industrial develreport
moderating
Improvement is becoming more evident in the District's
construction industry.
Despite
some
recent
slackening,
consumer expenditures
supply the driving force behind the southeast's recovery.
persist
in
motor
vehicle
sales;
Dealers cite holder-in-due-course
contingent
liabilities;
purchased
full recourse to the dealer.
dent
dealers
report
a
smaller
models
regulations
paper
remain
continue
Marked gains
an
exception.
as a source of
contracts
to
increasingly
increased
provide
Used car sales are strong, although indepen-
scarcity
of
customer
financing.
Reports
from
Birmingham indicate a continuation from May into June of weakness in soft
goods sales.
New Orleans
Price reductions late in the month alleviated this weakness.
area merchants
revive sales.
concessions.
also used earlier-than-usual
price
cuts
to
In both localities, customers responded well to these price
Reports from numerous small variety stores in Alabama and
Mississippi also indicate recent slowness in sales.
Reports from Florida
indicate slowness during May in some localities follow by gains in late
June, while others have enjoyed uninterrupted increases.
Some Nashville
retailers report sluggishness in retail sales, while slow, steady gains are
noted by others.
mentioned,
as well
Several cases of excessive inventory accumulation are
as
an
"industry-wide
problem"
with
charge
account
col lections.
Tourist
expenditures
remain
a mainstay
of
the
District
recovery.
Tennessee leads in strength, with large gains in attendance at national
parks and private recreational attractions.
huge
increases
in attendance
continually sold out.
receipts.
from
Opryland continues to enjoy
last year;
the
Grand
Ole'
Opry
is
New Orleans reports large gains in hotel and motel
Tourist traffic in central and southern Florida is generally
very strong, although one source in southern Florida cites a slight letdown
in June.
This report is echoed in northeastern Florida, where declines in
tourist patronage were recorded in June.
Food industries are another area of strength in the District.
The
shrimp fishing and processing industries in Louisiana are benefiting from
greatly increased catches and rising prices.
year.
The
sugarcane
industry
anticipates
They should have a banner
higher yields
acreage due to unusually favorable weather conditions.
on a
smaller
Weather has proved
detrimental to cotton yields in Alabama, Tennessee, Louisiana, and Mississippi.
However, markedly
producers to some degree.
higher
Corn production
Alabama, Tennessee, and Louisiana.
Alabama, Mississippi,
industry is prospering.
cantly.
prices
will
offset
the
is expected to be
impact
on
large
in
Crop progress in soybeans is good in
and Tennessee.
Florida
reports
that
the
citrus
The price of Valencia oranges has risen signifi-
Recent miscalculations
of orange
juice
concentrate
inventory
levels do not seem to have affected sales volume or the price of orange
juice.
Various industry developments include an aluminum plant operating at
maximum capacity which cannot meet the demand for its product.
Demand has
been boosted by the Canadian aluminum strike.
Rubber production in Alabama
remains dormant, pending settlement of the United Rubber Workers' strike.
Appliance
output
construction.
A
has
large
increased
steel
as
a
company
result
of
progress
is experiencing
production increases have stimulated rehiring.
in
increased
home
sales;
A machine tools producer
notes increased inquiries for pricing, although actual orders remain slow.
This company's present backlog results in a 6- to 12- month lead time for
new orders.
Farm equipment is selling very poorly, with the exception of
harvesting machinery.
A survey of Georgia purchasing agents indicates moderating economic
growth.
Increased sales and production are much less prevalent than in
prior months.
Further leveling of business activity in the next three
months is anticipated.
slower
deliveries
are
Delivery periods for purchases are
less frequently
noted, while
stabilizing;
unchanged
delivery
times are increasingly prevalent.
Average lead times on orders placed are
somewhat
tendency
shorter.
A moderating
in prices
is also
apparent;
reports noting price increases predominate but are offset to a much greater
extent by constant or lower prices.
eased somewhat.
Expected price increases have also
Growth in order backlogs has also moderated substantially.
Inventory additions are decelerating for raw materials and finished goods;
this tendency is expected to continue for raw materials.
Even the hard-pressed construction industry is showing definite signs
of revival.
tion.
Increased activity is general in single-family home construc-
Sales of homes are increasing and prices appear to be firming in
some areas.
In southern Florida, the number of foreclosures has decreased
substantially.
Some signs of interest in condominium projects have been
reported; these take the form of building permits and purchases of uncom-
pleted projects.
However, vacancy rates and inventories remain extremely
high in some areas despite substantial reductions.
judgment of one director,
"A turnaround
Nevertheless, in the
is in the making" and southern
Florida is "going through a moderate but firm recovery."
Seventh District -- Chicago
The economic outlook
continues
favorable
in the Seventh
District,
although the pace of the upswing probably has moderated since the first
quarter.
Unemployment has declined significantly in all major centers, but
remains high compared to pre-recession
levels, especially
in Michigan.
Despite publicized reports of weaker national performance of employment
and retail sales in recent months, there is little apprehension
District that the general expansion is near a peak.
in the
Motor vehicles and
many types of smaller capital goods are selling well, but orders for heavy
capital
goods continue slow.
Various equipment producers, however, ex-
press confidence that new orders will strengthen in the next six months or
so.
Single-family home construction continues at a high level, but other
construction sectors remain depressed.
Executives
continue to be cautious on commitments to increase
in-
vestments in inventories and plant and equipment, and on new hirings.
In
large part, this reflects still-fresh memories of the excesses of 1973-74.
But they complain of various government regulations that restrict managerial
discretion, and there is apprehension that this fall's elections
will produce a less stable political environment.
Most firms either are adding to staff or, at least, are not cutting
back.
Help-wanted advertising in the Chicago area rose significantly in
March and since then has been running 80 percent above year-ago, and has
been very close to the
level that prevailed
in 1973 and in 1974
until
September when a sharp decline began.
Capacity continues to be ample in virtually all sectors.
However, new
cuts in natural gas allotments have been announced for the winter season.
Limited availability of gas supplies is reported to be deterring expansion
of industrial firms in Wisconsin.
A recent heat wave in Indiana caused
reductions in electric power available to manufacturers.
Possible shut-
downs of nuclear plants present a continuous threat to power
supplies.
Lead times on new orders for materials and components have stretched out
further, partly because suppliers are reluctant to increase staff.
On the
brighter side, oil companies are less concerned about gasoline shortages
this summer because refinery operations have been
adjusted to
increase
supplies more readily than had been expected.
Opening steps have been taken to exploit a substantial body of copper
ore in Northern Wisconsin.
A Chicago steel firm contracted recently with
partners to substantially expand two iron mines in Northern Michigan that
produce low-grade ore which is converted into pellets.
Various firms have taken steps to assure future supplies of materials
and components against a recurrence of the bottlenecks of 1973-74.
They
have expanded their own facilities, purchased plants of smaller companies,
and have attempted to arrange firmer commitments from suppliers.
Some retailers were disappointed by sales results in May and June, but
they do not appear to have lowered their sights for the year as a whole.
The extent of sales promotions of seasonal merchandise since July 4 does
not suggest a heavy overhang of goods.
Appliance sales have been somewhat
weaker than expected, especially refrigerators and freezers.
The failure
of appliance sales to expand further may reflect large purchases of autos
and other vehicles, heavy vacation spending, and the higher proportion of
new housing units represented by single-family homes.
As
the
intermediate-
1976
model
year
draws
to
a close,
shortages
and full-sized cars are cited more frequently.
of
popular
Gluts of
some
small
cars
are
substantial.
The
smallest
auto
producer,
which
concentrates on small cars, stopped assembly of 1976 models on June 25,
several weeks earlier than usual.
The "Big Three" are pushing large car
output to the limit, mainly using overtime rather than extra shifts.
strikes at crucial plants have impeded auto production.
Local
The model change-
over period apparently will be shorter than had been expected earlier, but
new models will not be produced on the same assembly lines as old models
(as in the past) because many 1977 models are "not compatible."
Availa-
bility of tires is not an immediate problem despite the long strike.
The heaviest trucks are now selling well again and the uptrend in
sales of
lighter trucks, with an
remains "phenomenal."
increasing
share going to
consumers,
Demand for semi-trailers has picked up at least as
fast as sales of heavy trucks.
exceeded
Farm equipment sales, especially
tractors,
have
expectations
and inventories
moderate.
Export sales of farm equipment also have been strong.
heavy
in the field
are
Sales of
lumbering equipment, lift trucks, and smaller construction equipment are
well above recession lows.
Output of some types of heavy equipment remains at high levels, but
backlogs
for
virtually
all
types
continue
to
shrink.
The
volume
of
inquiries and quotes have been at a good level, however, and firm orders
are expected to increase as the general expansion continues.
Recent and prospective increases in steel prices are expected to hold
up.
Cold-rolled
sheets
are
heavier steel products has
other manufacturers,
will
"effectively
on
increased somewhat.
schedule
normal
allocation."
Demand
for
Steel mills, like most
summer
vacations
this
year,
despite lengthened lead times.
Single-family homes continue to lead construction.
For the first five
months home permits in the Chicago area were close to the high levels of
the early 1970's, but apartment permits were only a fraction of that level.
Apartments have accounted for only 30 percent of Chicago area permits this
year, compared to almost 60 percent in 1971 and 1972.
Commercial
industrial construction prospects remain poor through year-end.
mobile homes have increased sharply from last year's
early approach to peak rates of 1972-73 is anticipated.
and
Sales of
low level, but no
Eighth District -- St. Louis
Sales, production, and employment continue up in the Eight District,
although at somewhat reduced rates according to reports from businessmen.
Retail sales at department stores continued up at about the same pace as
last month.
Manufacturing activity is mixed.
Automobile production is
strong, but appliance orders have slowed recently.
Home building continues
to make gains, and mortgage rates have remained unchanged in recent weeks.
Business
loans at banks have likewise remained unchanged, although con-
sumer loans have registered further increases.
most
field
crops
except
cotton
In the agricultural sector,
are reported
to
be
in generally
good
condition.
Growth in retail sales has continued in recent weeks, and retailers
remain generally optimistic about future sales.
Automobile
continued to make sizable gains from year ago levels.
sales
have
Department store
sales have likewise increased; however, sales of some items at department
stores have levelled off due, in part, to unusually cool weather in June
and early July, which discouraged the sale of air conditioning and summerware items.
Most software items were reported to be selling very well.
Department store retailers report their inventories at desired levels, but
some car dealers reported very low inventories of full-sized automobiles.
Manufacturing activity has generally improved from a month ago, but
again the rate of gain has apparently slowed during recent weeks.
Appli-
ance manufacturers, for example, note a slowing in orders of refrigerators,
freezers,
and similar
items.
This
is thought
to
partially
reflect
slowdown in growth of inventory demand rather than final demand.
a
Inven-
tories of appliances, it was pointed out, were built up quickly in the
earlier months of the year and are now largely at desired levels.
Capital
equipment manufacturers reported that capital equipment demand has been
improving in recent weeks.
to be
Demand for equipment by utilities was reported
low compared with recent years, but such demand
improve next year.
is expected to
Automobile assembly plants producing the larger size
cars have been at full capacity, though some plants in the St. Louis area
are now undergoing extensive retooling.
ported to be stable.
and
increases
are
Aircraft manufacturing was re-
Defense-oriented aircraft production is fairly strong
expected
as
defense
spending
increases.
However,
commercial aircraft production is still reported to be sluggish.
A number of reporters commented on the possibility that plant capacity
was generally well below levels projected on the basis of trend for recent
years.
A representative of a major chemical firm indicated that obsoles-
cence during the last two years was much greater than normal.
The home building industry remains on the uptrend in the District and
commercial
construction
is beginning
to
increase.
Single-family
con-
struction continues to proceed at a fairly strong pace, while multi-family
construction
is still
improvement recently.
at a very
low
level
and has
Industry representatives
shown
expect
only
modest
a "shortage" of
multi-family units in some areas of the District this fall if construction
does not pick
up significantly.
Concern was also expressed about the
sustainability of the upturn in single-family housing in view of the sharp
price increases
in homes and the possibility of higher interest rates.
While commercial construction remains very low compared wtih most recent
years, reports indicate that it is beginning to increase.
Overall
recent weeks.
employment
gains
have
been registered
in the District
in
Several businessmen commented that qualified workers were
hard to find, despite the relatively high unemployment rates.
Unemployment
rates are below 5 percent in several of the smaller metropolitan areas,
while
in Memphis
and Louisville, where the recovery has been
somewhat
weaker than that of the nation, the unemployment rate is substantially
above the national average.
Savings and loan associations have experienced a slowing in deposit
growth in recent weeks.
plentiful
However, funds are still reported to be quite
for home construction as most associations still have sizable
amounts of uncommitted funds accumulated from earlier deposit gains.
The
cost of mortgage funds has generally remained in the range of 8 1/2 to
8 3/4 percent in the St. Louis area.
Business loan demand at banks has
been unchanged in recent weeks, while demand for consumer installment loans
has picked up.
Crops are reported to be in generally good condition in the Eighth
District.
time.
However, the prospects for the cotton crop are uncertain at this
Late planting, cold spring weather, and excessive rainfall threaten
to severely affect cotton yields.
cotton crop has been plowed
soybeans.
earlier
In several
areas, 10 percent of the
under and put into other crops, primarily
Hence, soybean acreage and production probably will be above
estimates.
Poultry
production
is reported
at
a high
although observers pointed out that further price declines for
meats would lead to cutbacks in production.
level,
poultry
Ninth District -- Minneapolis
Several
quarter.
Ninth
District economic
indicators weakened
in the second
Growth rates for retail sales were down considerably from the
first quarter.
The seasonally adjusted unemployment rate for the District
rose slightly in May to 6.0 percent.
quarter rate.
Housing permits fell from the first
Manufacturers responding to the bank's
latest quarterly
Industrial Expectations Survey revised their sales expectations downward
from the previous Survey.
Business investment still had not picked up by
early July, and as was true in June, capacity constraints still were not a
problem in this District.
Finally, the District's agricultural situation
improved from the previous month.
The growth rate for retail sales in May-June was down substantially
from the early months of 1976.
been about 25 percent.
The year-over growth rate through April had
But nearly all firms reported smaller gains in May
and June, and some firms said that sales were slightly less than in 1975
(May and June retail sales in 1975 were robust in this District).
Some
retailers even felt that stocks had become larger than desirable, in light
of the recent dip in consumer spending.
Sales appeared weakest in the District's rural areas -- perhaps due
to widespread drought conditions.
Sales
in the Twin Cities have
been
stronger, with some stores still experiencing increases over last June of
nearly 20 percent.
operates
Nonetheless, most increases were smaller.
stores nationwide
said, for
instance, that
A firm which
its June sales
in
Minnesota were about 10 percent above last year compared with its national
sales gain of 6 to 8 percent.
A representative of the firm said that the 10
percent gain was better than had been anticipated overall.
Retailers --
even those with lower June sales than in 1975 -- continue to be optimistic
about the second half.
Among
individual
products,
autos
continued to move well.
mediate and full-sized models were selling best.
diates and specialty models were common.
District and resort owners expected
Inter-
Short stocks of interme-
Tourism was doing well in the
sellouts
in July and August.
The
drought caused sales of some items -- such as lawnmowers -- to fall, but
caused sales of irrigation equipment to rise.
District labor markets weakened in the second quarter, according to
several seasonally adjusted indicators, although quarter-to-quarter
com-
parisons of seasonally adjusted data are perhaps misleading due to the
unusually mild first quarter in the District.
upward
to 6.0 percent of the
Employment,
seasonally
The unemployment rate edged
labor force, from 5.7 percent
adjusted,
leveled
off
after
increase; actual employment growth was substantial
was up about 3 percent from 1975.
several
and total
in March.
months
of
employment
The volume of help-wanted advertising
indicated a continuing strong demand for labor.
Manufacturing employment
turned up in May and was about 2 percent above the trough of last winter.
April data on housing permits indicated that sector also tapered off
from first quarter performance, though the unseasonally warm winter again
makes
interpretation
of
data difficult.
The
slowdown was
not
merely
statistical, however, and builders have expressed disappointment at the
rate of new home sales in recent weeks.
They attribute the slowdown to
buyer resistance to new homes' prices and to the recent upturn in interest
rates.
S&Ls are liquid, so that there is no evidence of a scarcity of
mortgage money in the District.
Manufacturing
sales gains
in the second and third quarters may be
lower than expected and lower than first quarter advances.
Manufacturers
said that first quarter sales were 15 percent above last year, and they
projected
second quarter
sales
at
earlier projection of 16 percent.
13 percent above 1975, down from an
Manufacturers
said that current
in-
ventories are at adequate levels in light of future sales.
Business
current
investment
dollar
value
slightly above 1975.
there
is
little
of
spending
remained
nonresidential
soft
in
the
construction
District;
awards
was
the
only
Excess capacity still exists in most sectors, so that
incentive
to make
capital
outlays
at this
time.
In
addition, manufacturers still have some doubts about the staying power of
the recovery:
for example, one manufacturer in the District says that his
firm has been postponing spending proposals for several months due to an
uncertain outlook.
In the District's farm sector, crop conditions improved from a month
ago.
Rains boosted prospects in areas afflicted by the spring drought.
On
balance, yields in the District will likely be lower than trend, but crop
conditions varied widely in the District.
Moisture supplies were still
extremely short across western Minnesota and eastern South Dakota.
remainder
of Minnesota's
condition
as
conditions.
of
late
corn and soybean
June,
with
some
crops were
areas
even
in fair
reporting
But the
to
good
excellent
Row crop growth in Minnesota was greater than normal; however,
frequent rain will
still be needed to carry crops through to maturity.
Small grain yields in Minnesota were harder hit by drought than corn or
beans.
Crop conditions were mixed across North Dakota, the major producer
of spring wheat.
The Montana winter wheat crop, on the other hand, is in
generally good condition, though yields will be down slightly from last
year.
Tenth District -- Kansas City
Residential
building
in the Tenth
District, especially of single-
family homes, has been very strong through the first half of
builders are optimistic about the remainder of the year.
1976, and
Cash inflows to
savings and loan associations continue to be heavy, and loan rates are
expected to remain
stable through year's
end.
Tourist and
recreation
business in the District's mountain states has also been very good.
Wheat
harvest in the District is proceeding satisfactorily, with total production now estimated to be significantly greater than originally expected.
District commercial banks report strong business loan demand in June.
Builders and home builders' associations across the Tenth
District
report a good year so far in residential construction activity, especially
for single-family homes.
There is more activity in custom-built homes than
in speculative building, with some scattered reports of increasing stocks
of the latter.
Multi-family unit construction is generally reported as
stagnant, except in New Mexico.
Most builders remain optimistic for the
rest of 1976, and some stretch their optimism through the first half of
1977.
A few respondents expressed some fear of overstocking of houses by
year's end, especially in Colorado, and most have a fear of rising mortgage
costs later this year.
According to spokesmen for Tenth District savings and loan associations surveyed, rates on a typical 80 percent conventional loan now range
from 8.75 percent to 9.5 percent, with 9 percent the most commonly reported
rate.
Most respondents expect rates to hold at the above levels, at least
through the end of 1976.
Cash inflows have been very strong in early July,
and loan demand was generally characterized as strong.
Several reporters
noted that their firms had experienced withdrawals of funds that seemed
clearly intended for purchase of consumer durable goods, especially new
automobiles.
The tourist and outdoor
recreation
business
in the Rocky Mountain
states of the Tenth District has been very good so far this summer, with
the peak months yet to come.
than in 1974 and 1975.
There are more tourists, spending more money,
One respondent described the situation in Wyoming
as "back to normal -- back to the pre-oil embargo days."
All states report
a greater proportion of campers, a trend toward all tourists staying in one
area longer and spending less time on the road, and a spending pattern that
includes more spending on gasoline but saving elsewhere.
Farm prices have been exhibiting strength in recent months despite the
favorable prospects for agricultural output.
For the month ended June 15,
1976, the index of prices received by farmers advanced 2 percent, as gains
in soybean, corn, and hog prices more than offset the slippage in cattle
prices.
At mid-June, prices were about 5 percent above year-ago levels.
In recent weeks, the Russians have purchased about 1.5 million metric
tons of soybeans in addition to about 4 million tons of wheat and corn
under the grain agreement consummated last fall.
The general strength in
foreign demand, together with the continued expansion in livestock feeding
domestically, explains the uptrend in grain prices until recently.
ever,
if
the
summer
and
fall
crops
turn
out
as
large
as
How-
currently
projected, grain prices could experience additional retrenchment.
The District's wheat harvest is progressing satisfactorily, although
the rate of progress is behind last year's pace as well
average.
Nevertheless,
appear
be
to
higher
production prospects
than
originally
as the
10-year
in the major wheat states
expected.
Recent
estimates
for
Oklahoma and Kansas, where harvest is virtually complete, are 151 and 322
million bushels, respectively, down about 7 percent from last year.
Nebraska
crop
is
also
expected
to
be
reasonably
good,
Colorado is disappointing because of weather difficulties.
but output
The
in
For the nation,
total wheat production is expected to be about 100 million bushels below
last year, with spring wheat output partially offsetting the decline in the
winter wheat production.
Most Tenth
District
banks
contacted
business loan demand during June.
reported
strong
increases
in
Several of the banks indicated that a
source of strength in loan demand was their participation in smaller banks'
loans.
Others, however, indicated that demand for loans arose primarily
from their own customers.
demand.
Reasons
financing
and
for
capacity
No particular industry or loan purpose dominated
borrowing,
nonetheless,
expansion.
included
Agricultural
both
loans -- primarily
finance cattle inventories -- also rose strongly in June, with
pation again being a factor.
Consumer
inventory
to
partici-
loans generally rose, with auto
loans showing the most strength.
Banks stated that their levels of negotiable CD's have bottomed out,
but that they do not expect increases
necessitate a buildup at this time.
in loan demand strong
enough
to
Several banks mentioned surprising
strength in demand deposits as another reason for keeping low CD levels.
Eleventh District -- Dallas
The economic recovery in the southwest has slowed, and although many
signs of strength are still evident, some areas of weakness are currently
hampering further
overall
improvement.
This month's survey touched on
retail sales, construction, drilling activity, and cattle feeding.
results suggest a mixed economic picture.
The
New auto sales are strong, and
the pace of residential housing starts is again picking up after leveling
off for four months.
Moreover, drilling activity should increase further
over the remainder of the year -- especially if the interstate price of
natural gas is raised.
sales have softened.
Despite the areas of strength, department store
Highway construction
remains
one of the
weakest
sectors of the Texas economy, and placements of calves in feedlots have
slowed because fed cattle prices have fallen well below production costs.
Sales of new cars and pickup trucks are strong throughout the District.
The biggest demand continues,to
be for
intermediate size cars.
Demand for large models is also up sharply largely because General Motors
plans to reduce the size of many large models in the 1977 production year
to
the
intermediate
size
range.
The
auto
dealers
surveyed
feel
the
announced 6 percent price increase for the 1977 models has had no effect in
stimulating purchases of the remaining 1976 models.
Inventory levels of
intermediate and large model cars and trucks are low, and some dealers are
completely out of the most popular models or will be before the 1977 models
are introduced.
Inventories of compact cars, however, are plentiful as
sales of these models have not met previous sales expectations.
Large
price discounts will likely be necessary to move the current inventory of
small cars.
Most respondents in a survey of department store executives described
business as "pretty good" but pointed to a softening in sales in the past
few months.
About half of the respondents felt the softness was centered
in durable goods, and about half felt the weakness was largely in nondurable goods.
Inventories are generally on the "high side," but remain at
manageable levels.
As a result, most department stores continue to take a
conservative approach to building inventories, and some have found the time
required
for
delivery
of
some
goods
has
begun
to
stretch
respondents felt retail sales would show steady improvement
out.
All
in the last
half of the year.
After
leveling off for four months, the pace of residential
struction
in Texas has again
continues
to
be
begun to quicken.
Most of
the
in single family starts, but some builders
con-
activity
look to a
significant improvement in multi-family construction by the beginning of
next year.
One reason for the slower than normal recovery in single family
housing, according to a San Antonio contractor, was the news media publishing stories that new homes have become unaffordable.
Another builder
attributes the current strength in new starts to the fact that people now
see that they can make mortgage payments despite higher prices and interest
rates.
With the exception of single family housing, construction activity in
the southwest remains depressed, and one of the weakest sectors is highway
construction.
In Texas, the growth
in highway construction
funds
has
tapered off with slowdowns in both federal funding and state tax revenues.
And with road building costs rising at an estimated 15 percent per year,
actual
construction
put
in
place
is
being
sharply
reduced.
A
few
contractors have gone out of business, while others are selling off used
equipment and are cutting back their work forces.
The decline in demand
for materials used in road building
is largely responsible for the de-
pressed market for construction steel and reduced output in the stone, clay
and glass industry.
Although
the
number
of
active
drilling
rigs
in Texas
is about 4
percent below the high levels attained a year ago, an increase began a
month ago and most industry spokesmen anticipate further gains in drilling
over the remainder of the year.
But many drillers no longer expect the
gains to be as strong as anticipated two months ago.
restrained by the rollback
Activity seems to be
in prices for crude oil, and many
drillers
report that proposed tax law changes and the threat of divestiture could
discourage
investment
in the
industry.
Nevertheless, many
independent
drillers expect that the Federal Power Commission will raise natural gas
prices from $.53 per thousand cubic feet to as much as $1.50 by September.
If a large increase is granted, exploratory drilling for gas should rise
sharply.
Placements of calves in southwestern feedlots slowed considerably in
June from the
increased
levels of
late
1975 and early
1976.
Bankers
financing cattle feeders expect placements to remain low as fed cattle
prices have edged below feeder cattle prices and the cost of grain.
One
banker reported that with current prices for fed cattle around $40 to $41
per hundredweight and the cost of grain near $48 per hundredweight, cattle
feeders are incurring heavy losses.
and bankers
are cautious
Considering the losses, cattle feeders
about placing new cattle on feed.
demand for feeder cattle loans has weakened.
Thus, the
The weakness in fed cattle
prices apparently is caused partially by the increased slaughter of heavier
weight grassfed calves as prices for feeder calves are restrained by the
lower demand for feedlot replacements.
Twelfth District -- San Francisco
In the opinion of our directors,
moderate, sustainable pace.
deliberately
and
hoarding
the recovery is proceeding
Inventory-sales
psychology
seems
ratios are being
non-existent.
at a
kept
low
Except
for
natural gas, supply schedules are generally being met with only an insignificant number of delays being reported.
In the absence of capacity growth,
however, scarcities might develop in 1977 in the aluminum, high-grade paper
and chemical
industries.
The agricultural
drought conditions in some areas.
picking up.
outlook
is fair in spite of
The market for aircraft appears to be
Money center banks continue to be disappointed with the low
level of loan demand.
Our directors were asked to comment on the fact that the 15 percent
rise in total business sales during the first year of the current economic
recovery was accompanied by only a one percent rise in inventories.
The
majority
their
own
policy
was
reported
company's
that
experience
deliberate.
these
and
trends
that
the
generally
cautious
reflected
inventory
The 1973-74 recession which, in many cases, involved a costly
sell-off of swollen inventories, is fresh in their minds.
cite the high cost of borrowed funds as a deterrent.
Moreover, many
They also credit
efficiency measures adopted since the recession which allow operating at
lower stock-sales ratios.
Except
copper
where
evidence
of
in the cases of coffee where forward buying
the
accumulation
a hoarding
has
psychology.
been
involuntary,
is active and
there
is
little
Filling of orders by vendors
has
generally remained timely, although some delays have been reported in the
retail sector and in the area of construction materials such as electrical
and plumbing fixtures.
In the lumber industry, the inventory gain has
matched that of sales over the past year.
Surveys by a large West coast bank indicate that businessmen now plan
to increase their
inventories
in step with sales gains,
and, with
few
exceptions, they feel that stock levels now are just about right.
"The
recent slowing down in inventory building augurs well for a solidly based,
long up-trend in the economy."
Except
generally
for
do
not
natural
gas
represent
supplies,
present
a critical
or
shortages
disruptive
of
materials
problem.
Under
conditions of continued real growth above 4 percent, it is thought that
shortages could develop in the aluminum, high-grade paper, and chemical
industries during the second half of 1977.
There is also some possibility
that cattle will be in short supply by year-end 1976.
No instances of
capital expansion were cited.
In spite of drought
conditions
in California and the Teton
flood
disaster in Idaho, the agricultural outlook remains fairly good, but the
final outcome is still a matter of speculation.
Farm prices are considered
low; some 1975 potatoes and beans are in storage due to low price
demand.
and
But plantings are in and much now depends on the weather.
dressed meat
prices
haved
dropped
$5
to
10
per
CW
and
Fat cows
recently,
as
excessive numbers were brought to livestock commission sales.
Pockets of increased construction activity are appearing in the West,
but the trend is generally flat.
last year
reporting
in residential
gains.
Utah claims a 33 percent increase over
housing
Strength
in
activity
housing
and Southern
seems
closely
California
associated
is
with
increases in area employment.
There has been a promising renewal of government contract activity for
aircraft; bids are being taken on 12 to 15 new programs.
On the commercial
side, new orders for placement of equipment have prompted a 15 percent
improvement in the production rate of one large manufacturer.
The average
domestic airplane is 8 years old and this should eventually affect replacement demand.
Loan
demand
at
money
center
banks
has
continued
sluggish;
consumer lending which had been vigorous, has slowed somewhat.
overhanging
helpful.
REITs' problems
are finding
even
Banks with
the slow pace of the
recovery
Bank profits for the first six months of 1976 are expected to
follow the pattern of the first quarter; a very few banks are expected to
report increases in second quarter earnings over the first quarter.
Cite this document
Federal Reserve (1976, July 19). Beige Book. Beige Book, Federal Reserve. https://whenthefedspeaks.com/doc/beige_book_19760720
@misc{wtfs_beige_book_19760720,
author = {Federal Reserve},
title = {Beige Book},
year = {1976},
month = {Jul},
howpublished = {Beige Book, Federal Reserve},
url = {https://whenthefedspeaks.com/doc/beige_book_19760720},
note = {Retrieved via When the Fed Speaks corpus}
}