Beige Book Report: Cleveland
August 12, 1970
The limited data available for July suggest that economic activity in the District remained at about the improved June level. Steel production for the third quarter, largely reflecting demand from auto companies, is expected to be slightly above the second quarter after allowance for the normal summer slowdown. Several local labor-management disputes in the Cleveland area have been settled at high cost. District bankers report they expect loan demand to remain strong and money market conditions to stay comfortable in the immediate future. Several of our Branch Directors expect the economy to remain sluggish in the foreseeable future.
Economic activity in the District improved significantly in June after the termination of major strikes, and preliminary and limited data suggest that activity remained at about the same level in July. The District's insured unemployment rate was essentially unchanged in July, and steel production rose moderately. Economists in the steel industry report that auto companies have placed orders at normal levels for steel deliveries for July, August, and September, despite auto strike possibilities. Auto firms regularly place a normal level of steel orders before contract negotiations, and this year will ask steel firms to take finished steel into inventories if a strike materializes in mid-September. Furthermore, if a strike occurs, production should not decline as much as shipments because inventory building will probably occur at the mills late in the year. Trade sources report that auto companies are unable to get commitments for Japanese steel to be delivered next year. Apparently, Japan will not accept steel orders above the voluntary quotas, and will not divert steel to automotive companies from regular customers. Steel industry economists in our area report export demand is declining rapidly.
Striking sheetmetal workers and plumbers in Cleveland settled their disputes at the end of July and in early August. Only one major union—pipefitters—remains on strike, but this is enough to keep construction at a reduced level in the Cleveland area. The principal unresolved issue is the hiring of minority workers. A $3 per hour increase over three years (raising journeyman rates by 1972 to $9.41 for painters, $10.20 for iron workers, and $10.81 for sheetmetal workers, for example) appears to be the pattern of settlement accepted by all of the other construction crafts in the area. The increases will further widen the local-national differential in average hourly earnings for journeymen and helpers in all construction trades (last year, $5.99 in Cleveland and $4.78 in the nation).
Economists and senior investment officers at several of the largest banks in the
District were recently surveyed informally regarding their current views and
expectations about the economy, the banking situation, and money market
conditions. Almost all of the respondents indicated they expect the economy to
remain sluggish during the second half of 1970, although most of the economists
look for a modest increase in real activity. All of the major banks in the
District are experiencing strong loan demand and demand is expected to remain
brisk over the foreseeable future. Respondents felt that the present comfortable
tone of the money market would continue and that funds would be readily
available to banks at interest rates equal to or slightly below current levels.
One investment officer from a large bank reported that they had just reduced the
rate on 60-89 day money to 7 3/4 per cent and would now pay a uniform rate
across the board in the
30-89 day maturity range. The same bank anticipates
another reduction in the CD rate in the near future. All of the banks are much
more concerned about the credit worthiness of borrowers than formerly, and
expressed the view that this concern would persist.
Several of our Cincinnati Branch Directors, at a meeting of the Board last Monday, commented about the continued sluggishness of the economy. One Director, representing a major electrical equipment firm that produces jet engines, consumer durables, and a broad range of electrical products, mentioned that the firm's internal forecast projects continued sluggishness and limited real growth during the remainder of 1970 and for most of 1971. The firm also expects profits to remain under considerable pressure. Another Director, who is associated with a large machine tool firm, reported that machine tool order backlogs are down substantially, and will probably remain at reduced levels for some time.