Beige Book Report: Boston
August 12, 1970
Cautious optimism over the prospects for a sustained economic recovery is now more apparent among our respondents than at the time of the last Red Book report. Nothing in the way of substantive new information was detected, however.
For the most part, District I commercial bankers continue to report a good, and improving deposit picture. While conditions in the banking sector remain very tight, things are much improved from earlier in the year, and respondents report satisfaction with the orderly pace of developments over recent months.
The level of manufacturing activity in the region shows no signs of significant change in either direction, with luxury consumer items and housing-related products continuing to show the greatest weakness. Manufacturers uniformly report an improved availability of parts and other inputs, as well as shrinking backlogs of orders. Several of our directors report a somewhat improved outlook for corporate profits in the second half of the year in the sense that the sharp declines of the first half are not likely to be repeated.
The severe localized unemployment associated with the shoe, textile, and tool industries continues to worsen, and businesses of all types seem to be experiencing a marked increase in the rate of job applications by skilled employees. With the exception of automobiles—which are picking up noticeably—retail sales remain generally sluggish.
Professor Eckstein remains optimistic. Second quarter GNP revisions have now been run through the DRI model, and cause no significant change in the forecasts for coming quarters. $980 billion is now suggested as the likely nominal GNP for the year. Eckstein sees the housing comeback as developing more quickly than anticipated, and expects third quarter starts to run a seasonally adjusted annual rate of 1.45 million units. Unemployment is expected to rise slowly to a maximum of 5.4 per cent in mid-1971. Eckstein asked to be recorded as very dubious that the basic cost-push element in the economy has been slowed. He sees no proof of any abatement, and attributes the Spring respite in wholesale prices to sensitive materials and foods, not to basic industrial inputs.
Professor Henry Wallich is similarly satisfied with the current economic position, although perhaps for different reasons. He sees the current trend of interest rates and monetary aggregates as acceptable, and would recommend no alteration of current monetary policy. On the real side, he expects only a modest decline in business fixed investment next year, and assesses the prospects for a housing recovery as good. He expressed the hope that the economy will continue to simmer at about current levels for the next 2 or 3 quarters rather than pick up momentum, stating that inflationary pressures will otherwise soon be out of hand again. He also offered the neutral observation that time is running out for the Administration, from the point of view of political timing. If the economy were to fully recover by late 1971, it is unlikely that unemployment will have dropped to normal levels by the Fall 1972 elections, given the lag in that series. He does not suggest current policy be altered on these grounds, however.