Beige Book Report: Boston
October 14, 1970
This month's calls turned up virtually no new regional business or financial developments. Perhaps the one summary impression most worth noting is a somewhat diminished conviction among our respondents that we have actually embarked upon a clear-cut course of recovery from the first half of this year.
Deposit flows continue to hold up quite well at New England financial institutions with time accounts of all types showing particular strength. Moreover, the non-financial business community now seems to be showing an increased awareness that monetary conditions have loosened appreciably. Loan demand continues flat in most categories at our commercial banks.
The consumer picture appears quite mixed. While many signs of continuing consumer caution are apparent, other selected indicators would seem to indicate a greater willingness to spend. Autumn tourism, for example, appears headed for record levels and advance sales of winter recreational equipment are running ahead of expectations.
In regional industry, one of our directors noted that we are finally seeing some moderation of wage demands in current union negotiations. The machine tool industry continues at a severely depressed level, with even more layoffs developing over the last month. Many other lines of industrial equipment and basic industrial inputs still have not felt any appreciable slowdown, however, and they do not now expect any to develop. No upturn in construction levels are yet apparent, nor have mortgage rates started to ease. Some institutions, however, have now begun to rebuild their mortgage commitments.
Our academic consultants once again provided a range of views. Professor Henry Wallich expressed no surprise at the 51/2 percent unemployment figure, suggesting that the statistics are just now catching up to what's been happening. Wallich pointed out that while this figure may be unfortunate on other grounds, it does bode well for a pickup in productivity and hence for progress against inflation.
Wallich expressed optimism that we will be back to a full potential real rate of growth by early next year, and suggested that real quarterly GNP growth over 1971 might behave along the following lines: 31/2 percent, 41/2 percent, 5 percent, 6 percent. This outlook was based on several factors, including the good prospects for a housing recovery, state and local expenditure levels, the Edie survey on plant and equipment expenditures, and the conviction that the consumer will respond to current conditions with a lag. Professor James Tobin took nearly the opposite tack on all of these points. He sees no strong lifting force in the economy right now, and feels none is likely to develop. He concurs with Walter Heller on his prediction of a 5 percent GNP gap by the end of the year, and feels that both fiscal and monetary policies for stimulus are needed.
Professor Paul Samuelson expressed a feeling that the economy "has a little less zip now than a month ago", although he is not alarmed at the 51/2 percent unemployment figure. Both he and Wallich voiced a concern that the current "endogenous" deficit will produce no real economic stimulus, but that it may very well interfere with capital markets enough to threaten the housing recovery. Referring to the arguments of Sprinkel and other monetarists that the Fed may be creating a large dormant money supply which will activate itself at some later date, Samuelson made a strong plea for the System to maintain its current rate of monetary expansion. He did acknowledge the fact that the current growth of aggregates cannot be maintained for too long, but that, while the time for slowing them down may be very near, it is not yet here.
Professor Eckstein was unavailable for comment this month.