Beige Book
National Summary

January 15, 1975

District "Red Book" reports for mid-January generally reflect the accentuation in most parts of the country of the pronounced deterioration of the economy in the recent past suggested by nationwide economic indicators. Retail sales in most areas over the holiday season were only equal or barely above last year's level in dollar terms and, given the sharp rise in retail prices over the past year, lower in volume. Moreover, this year's level was achieved only by dint of heavy pre-Christmas aggressive promotion, special sales, and price cutting in addition to the usual early January clearance sales. Against this background, a number of respondents in various Districts regarded retail inventories to be relatively high to excessive in relation to current sale prospects, with increased reports of efforts to reduce positions, both at the retail and manufacturing level. Planned business plant and equipment outlays, apart from energy related industries, on balance appeared to be weaker than had been expected, and a number of Districts report cutbacks, or outright cancellations of planned projects. The private residential construction, and to a lesser extent commercial construction, picture remained bleak, although a reported moderate reversal in the outflow of deposits at thrift institutions gives hope that the eventual bottoming of the decline in that industry may be approaching. The outlook for near term manufacturing activity other than related energy industries was further dimmed by widespread reports of declining new orders, shipments and backlogs.

Against this background, virtually all Districts report a rise in the jobless rate, concentrated in the automobile and construction related industries, but also widening to other economic sectors. In addition, there were increased reports of rises in payment delinquencies and in bankruptcies. On the brighter side were reports of lessened, even vanishing, materials scarcities, of price reductions of primary commodities and of downward price pressure at the manufacturing and wholesale level; apart from the possibly only temporary promotional price concessions mentioned above, however, these reductions as yet seemed to have had limited influence on retail prices generally.

Concerning retail sales, San Francisco, among other Districts, reports consumer spending in December as restrained, and while retail sales rose in dollar terms, this resulted primarily from vigorous efforts by retailers to draw down excessive inventories. Minneapolis reports that most retailers surveyed had December sales increases of only about 5 percent, in good part achieved by price cutting. Philadelphia District dollar sales in December were only slightly above last year's level with retailers relatively pessimistic regarding the outlook for January. Cleveland describes retail trade as "poor", despite a late spurt during the week prior to Christmas, while Richmond finds continued weakness in the sale of big ticket items. Atlanta characterizes pre-Christmas sales as very good in many areas of the District, largely in response to heavy promotions and price cuts. St. Louis reports that department stores' dollar sales were up somewhat from a year ago, a better performance than had been expected. Holiday sales in the New York District were on the weak side, but no more than had been expected, and reported to have been strengthening somewhat recently.

This relatively sluggish retail sales performance for this time of year finds its counterpart in excessive inventories, and in actual and expected efforts to reduce stocks, at the retail and, in some instances, at the manufacturing level, as reported by a number of banks, including Minneapolis, Kansas City, Richmond, Cleveland, Chicago and New York. Moreover, declines in new orders and backlogs and increases in cancellations, as well as the virtual elimination of many shortages and the appearance of surpluses of some materials and finished goods, are noted by a number of banks, including Philadelphia, Cleveland, Chicago, Richmond, San Francisco and Dallas. Dallas, however, reports that firms supplying steel and fabricated metal products to energy related industries continue to be hard pressed to meet demand. Cleveland and Richmond note that sharp reductions in natural gas supplies are adversely affecting production.

The well known plight of the construction industry is mentioned in a number of reports. Atlanta notes, however, that owing to an improving inflow of dollars to thrift institutions, funds are rapidly becoming more readily available for the housing industry, while Kansas City reports that several commercial banks plan to commit funds for future construction. An improvement in inflows to savings and loan associations is also reported by Minneapolis and Chicago, but these institutions are not expected to increase loan commitments until they have reduced their large borrowing and increased their liquid assets.

Over half of the reports point to evidence of a weaker capital spending picture. Among others, Boston reports that orders for machine tools have "all but vanished", while Cleveland and St. Louis report a weakening in the sale of such items. San Francisco reports more cancellations of capital projects; almost half of the manufacturers surveyed by Richmond consider current plant equipment excessive; and Chicago states that although producers of heavy capital equipment continue to operate at capacity, backlogs are declining, and in the case of heavy trucks have "dissolved".

The unemployment picture has darkened throughout most parts of the nation, although there are regional variations in the intensity of the problem, ranging from "probably unprecedented since World War II" in the Chicago and Detroit areas to the report by Minneapolis that, while layoffs have occurred in the District, they have not reached the proportions reported nationally. At the same time, there were some reports of continued shortages of skilled workers and, in the Dallas District, of unskilled labor as well.