Beige Book
National Summary

February 12, 1975

The general thrust of this month's comments is that the economic situation has deteriorated and further weakening is in store. Unemployment seems likely to rise again in February, on the basis of widespread reports of more layoffs since early January. Slackening conditions in the labor market, however, have done little thus far to curb wage demands, according to New York and Chicago. On the other hand, the recession appears to be having a depressing effect on prices, perhaps even more than the indexes suggest. The overall impression of the District reports is that the recession has become more pervasive but there are regional and industry sources of strength in the nation's economy. Reduced natural gas supplies, mentioned by Cleveland and Richmond, have contributed to cutbacks in industrial production and employment. Housing remains in the doldrums throughout the nation, retail trade generally continues to be sluggish except for a pickup in new car sales, the capital goods sector is showing signs of further weakness, and excessive inventories remain a problem for many firms. A number of Districts report instances of inventory liquidation underway. At the moment there seems to be little optimism regarding prospects for an early recovery. In one of the more bearish reports, for example, Boston points to growing fear of a "second tier" in the recession; its academic correspondents are particularly concerned over the state of the economy. Alternatively, there are some encouraging items. Philadelphia reports that more than half the manufacturers in its survey are optimistic for the outlook six months ahead. Richmond says there seems to have been a break in the mood of pessimism which has prevailed over the past few months, with an increase in the proportion of their survey respondents expecting an improvement in business activity in the next six months. Atlanta mentions a rebound in tourism in Central and South Florida, and that businessmen seem to have a renewed air of optimism since the first of the year.

In the consumer sector, heavy sales promotions and price-cutting have had limited success stimulating retail trade. Sales are described as weak or sluggish in virtually every District. The auto manufacturers' rebate program has made new car sales an exception, but as Chicago notes, has not brought about a boom. Atlanta adds that some dealers worry about what will happen when the rebate program ends. Philadelphia says retailers are pessimistic about the near-term outlook, and Boston reports that retailers are growing more cautious in their ordering. New York and Richmond say some progress has been made reducing excessive retail inventories.

In the capital goods sector, several industries are still operating at a high level. Chicago says large order backlogs are maintaining output of equipment for coal mining, oil well drilling, rail transport, ore boats, heavy agricultural operations, and chemical processing. Orders for many other types of capital goods have dropped sharply, however. Philadelphia reports that capital spending plans have been cut back in the retail sector, but are holding firm in manufacturing. New York and Cleveland see signs of weakening in capital spending. Richmond and Atlanta mention little scaling down or retrenchment in spending plans. In New England, firms say most investments are planned for such purposes as cost reduction, replacement, and compliance; plans for expansion are nil. San Francisco commented that an increase in the investment tax credit would not help capital spending until late 1975.

The agricultural outlook for soybeans and feed grains appears to be encouraging, according to Dallas, St. Louis, and Richmond. Despite recent declines in crop prices, there is still enough incentive to increase production plans, The sharp drop in cotton prices is causing a switch from cotton to soybean production. Kansas City, Dallas, Minneapolis, and San Francisco all comment on the difficulties of livestock producers, many of whom have gone bankrupt.

Among Districts commenting on banking developments, Philadelphia says prospects of large defaults in loans are concerning bankers. Dallas says that most banks have increased reserves for loan defaults. It also reports that delinquencies on farm loans have risen. No District reported any strength in business or consumer loan demand. Demand deposits have declined generally.

Thrift institutions continue to have net savings inflows, according to Dallas, St. Louis, Atlanta, and Cleveland. Chicago notes a dropoff in savings inflows in late January.