Beige Book Report: Philadelphia
June 17, 1970
In the Third Federal Reserve District, views on current economic conditions and the near-term outlook were solicited from the Board of Directors, a sample polling of large manufacturers (business outlook survey), and selected non-manufacturers. In summary, there is considerable agreement that (1) consumers remain pessimistic, (2) outlays for plant and equipment are being cut back or deferred, (3) labor markets are easing but wage costs are not, and (4) growth in the money supply is too fast.
Reports from around the District indicate widespread pessimism on the part of consumers. Large department stores in the region report poor sales for large luxury items all the way down to small inexpensive goods. One department store executive quipped that "... only $12.95 shirts on sale for $3.98 are moving—and even then customers aren't waiting in line". Hence, merchandising firms are being extremely cautious in stocking for fall and winter.
There is increasing evidence that industrial firms in Pennsylvania, New Jersey, and Delaware are canceling and postponing outlays for new plant and equipment. A canvassing of large manufacturers in the Third District shows that since April there has been a marked cutback in spending plans for the next six months. Three out of four firms responding anticipate either no change or an actual decline in expenditures for plant and equipment for the balance of 1970. Falling profits and a shortage of funds are most responsible for these cutbacks, say regional executives.
Additional softness in the labor market for the near term also appears likely. Very few firms plan to increase their payrolls in the coming months, while most firms plan to freeze employment levels or lay off jobholders. There has, however, been no let up in wage demands. One director postulated that the rate of inflation is more relevant for wage demands than the rate of unemployment. With cost-push pressures unabated, inflationary expectations remain intact.
Both bankers and businessmen on the Board of Directors are still concerned about a liquidity crisis. One banker further noted that the move toward monetary ease apparent in national figures has somehow bypassed the Third District. Along with concern about taut liquidity, directors are disturbed by the accelerated growth in the money supply. Although aware of some of the recent problems in monetary management, including a possible liquidity crisis, they believe that, unless growth in the aggregates is slowed, a new round of inflation may be in prospect. Also, the directors are concerned that the large amount of Treasury financing scheduled for the second half of the year will make modest growth in the money supply a difficult target to hit.