Beige Book
National Summary

May 14, 1975

This month's Redbook reports provide several indications of improvements in activity, but many sectors are still declining. A widespread belief exists that the recession is "bottoming out," and that a turn for the better is near at hand. The words "optimism" and "optimistic" appear frequently. But an early return to full prosperity is considered unlikely, and unemployment is expected to remain high. Retail sales remain sluggish in virtually all regions. Inventory liquidations are continuing, especially at the manufacturing level. The rate of inflation continues to moderate. Makers of many types of capital goods are cutting output, and others are working off backlogs. Although residential activity is improving moderately in some regions, new construction remains at a very depressed level. A number of reports indicated that loan demand at commercial banks has been soft, but this may reflect, in part, highly selective lending policies. Agricultural prospects are generally favorable, except for flooding rains in the South and excess moisture in Iowa.

Most districts report that the rate of decline in activity has at least slowed down. Improvements are reported for appliances and auto tires (Cleveland), textiles and apparel (Richmond, Atlanta, and Dallas), chemicals (St. Louis), and aircraft (San Francisco). New York says many manufacturers are cutting output rather than prices. Demand for autos and most consumer durables remains very weak, inventory liquidations continue, and the capital expenditures boom is ebbing.

Virtually all districts commented on the continued poor performance of retail sales. Auto deliveries fell back after the rebate programs expired. New York and Philadelphia indicated that cold, rainy weather had hurt sales of general merchandise recently, adding to the effects of unemployment and adverse consumer psychology. A number of districts attempted to assess the impact of the personal tax rebates, but with inconclusive results. Chicago commented on lagging sales of mobile homes, RVs, boats, and lawn and garden equipment. Atlanta was impressed with "unbelievably" strong tourism. A number of districts found that retailers had reduced inventories to desired levels, but some additional cutting was in prospect if sales did not improve.

Manufacturers' inventories remain generally excessive, except for textiles and apparel, and substantial further overall liquidation apparently is planned. San Francisco commented on very heavy inventories of petroleum and copper. Several districts indicated that steel mills are building inventories, while their customers are liquidating, but the overall effect is a substantial slide in mill shipments, output, and employment. No significant revival in steel shipments is likely until late in the year, when auto and appliance producers are expected to lead the recovery.

Various districts reported that price inflation had slowed significantly, with some wholesale and retail prices relatively stable and others declining—see New York, Philadelphia, and Chicago.

Cleveland and Chicago say that demand for equipment for coal mining, energy exploration, pollution control, steel production, and water and sewerage is very strong, but most other capital goods producers have reduced output, more or less substantially. Electric utilities and railroads are moderating capital outlays because of financial stringencies. The picture for farm and construction equipment is mixed. Heavy truck sales are dismal. Districts commenting on the increase in the investment tax credit found it relatively ineffective. Foreign demand for U. S. equipment is strong, partly because of favorable exchange rates.

The construction outlook remains gloomy, although Atlanta and St. Louis report some improvement in the residential sector. Large inflows of savings to S&Ls continue, but both homes buyers and lenders remain cautious. San Francisco says new construction is at a "standstill." Districts commenting on the home purchase tax credit see little impact, partly because of the complexities of the IRS guidelines. Dallas suggests the tax credit is simply a "windfall" to those who would have purchased homes anyway. Usury rates are mentioned as a problem in Illinois and Minnesota. Atlanta reports several bankruptcies of apartment complexes and mortgage companies in Florida.

A number of districts (Boston, Philadelphia, Cleveland, and San Francisco) note that mortgage lenders expect interest rates to rise later in the year. Two districts discussed the "crowding out" effect of heavy Treasury financial needs. Philadelphia says few bankers believe demand for credit is being influenced by the prospective federal deficit. Dallas, however, emphasizes "crowding out" as a potent factor hindering efforts of business firms to raise funds in the capital markets, which have become "inaccessible." Commercial banks and other lenders have become highly selective in granting new credits to all classes of borrowers, according to several districts.