Beige Book Report: Philadelphia
August 12, 1970
Intelligence for this report was obtained from our Board of Directors, from city bankers, and from a preliminary tabulation of returns from a poll of large manufacturers in the Third District. The major findings are: (1) capital expenditures are likely to be sluggish into 1971; (2) some pick-up in business activity is expected towards year end; (3) concern for liquidity positions of firms is still widespread.
Although the outlook for capital expenditures is mixed, the majority of respondents to our August survey of large manufacturers in the District expect no change or a decline in capital expenditures six months out. One large firm in the chemical industry plans to hold 1971 capital expenditures to this year's level. The paper industry continues to be plagued by excess capacity. Allowing for price increases, real capital investment plans for 1971 are even more modest than these projections would suggest.
No one with whom we talked is very optimistic about the level of
business activity in the months immediately ahead. One Director
reports a slowdown in commercial orders for electric storage
batteries. He reports that new orders are running 10 per cent below
a year ago. Another Director reports that firms in the paper
industry are being caught in a tightening
cost-price squeeze. The
chemical industry generally is in the doldrums. Nonetheless, a
majority of large manufacturers in the District are expecting some
increase in new orders, in prices paid and received, and in the
general level of business with respect to capital outlays in 1971.
Lack of enthusiasm, however, with respect to capital outlays in 1971
suggests that expectations of any upturn in business activity are on
the modest side.
As we reported last time, the feeling is widespread that the economy is in a more comfortable position insofar as liquidity is concerned. Nevertheless, quality of the borrower's credit has assumed more important dimensions in the past several months. A number of people with whom we talked thought it is premature for the Federal Reserve to begin to unwind from the position it adopted and announced after the Penn Central insolvency. Several of the bankers with whom we talked believe that many commercial banks are overdue in reassessing their own liquidity positions.
Two of our Directors who recently returned from Europe report that businesses there are experiencing troubles similar to our own. In England, for example, there is a widespread fear that many businesses may be pricing themselves out of the market.