Beige Book Report: Cleveland
December 9, 1970
Our latest survey of District manufacturers indicates that business activity in November was the weakest in any month thus far in 1970. Both capital goods producers and General Motors suppliers reported declines in a number of key areas of activity included in the survey. A rebound of moderate proportions is anticipated in December, although recent declining tendencies in employment are not expected to be reversed. Activity is beginning to pick up in the steel industry, but the full thrust of the inventory stockpiling is not expected to be felt until the second quarter.
The indirect effects of the General Motors strike were apparent on employment and unemployment in the Fourth District in November. (District manufacturing employment was down 10 percent from November 1969, while the insured unemployment rate was three times higher than the year-ago level, 3.9 percent versus 1.3 percent.)
The strong recovery in residential construction contracts continues to be a source of strength in economic activity in the District. A spokesman from General Motors Corporation informed this Bank (confidentially) that, as of December 7, only eight plants had not signed contracts, and four of those plants were working without contracts. Of the four plants still inoperative, three are located in the Fourth District (one is in Cleveland and two are in Cincinnati). Two economists with large steel firms in the District reported some improvement in new orders, a substantial proportion of which call for delivery in February. Both these economists reported that releases of stockpiled steel for GM have been smaller than the steel industry had expected. About half of the steel that the mills have been holding for GM will be shipped in December and the remainder in January. Both steel economists believed that inventory stockpiling would begin later this time than during the previous strike-hedging periods. Inventories held by steel users are not expected to rise appreciably until February, with the big push coming late in the pre-strike period (July 31 deadline). Where possible, steel consumers are expected to hedge with foreign orders for delivery after August 1.
An economist for a large diversified manufacturing firm (auto components, electronics, and defense products) reported that his firm expects an upsurge in new orders in the first quarter of 1971 as GM production expands. On a broader scale, he indicated a strong belief that the upturn in auto output and some buildup in steel inventories as a hedge against a steel strike will bolster industrial production and lead to some modest improvement in the unemployment situation. These developments, he feels, will improve consumer confidence and stimulate consumer spending.
On the financial side, one of our directors, who is the chairman of
one of the largest banks in the District, reported that the demand
for loans remains strong and that the bank is not going to expand
its municipal bond portfolio. This director noted that maturing
issues will be replaced, but beyond that "we have enough
municipals". The continued strong demand for loans includes a number
of construction loans—hospital financing and plant construction
loans—and requests for increased lines of credit from both old and
new customers. Of particular interest are the request for extensions
in credit lines from "captive" auto finance companies that expect an
increased volume of credit demands as a result of the reduction of
auto financing by sales finance companies. Ford Motor Credit
Company, for example, is attempting to increase its nationwide
credit line from $600 million to $1 billion. The economist and a
senior investment officer at another large bank in the District
reported that the demand for loans remains weak and that the bank
has completed acquisition
of a modest amount of municipal bonds,
mainly in the
one- and two-year maturity ranges.