March 9, 1971
Unemployment, seasonally adjusted, in the Ninth Federal Reserve District has tended to remain at around 5 percent of the labor force since last fall, and there are no strong indications that it will change significantly over the next few months. Although businessmen have generally become a little more optimistic in their sales and profits expectations. This is not reflected in their planned capital expenditures or hiring policies. The directors of this bank were generally disappointed in President Nixon's decision to suspend the Davis-Bacon provisions regarding the payment of union wages on Federal and Federally assisted construction projects, preferring somewhat stronger actions to reduce the rate of inflation.
Although there are some notable exceptions, the directors of this bank feel that businessmen in the Ninth District are slightly more optimistic than they were a few months ago. Businessmen in general, however, have postponed the expected turnaround date and now feel that the pickup in activity will not come until the second half of the year, and then only gradually. As a result, they are still very cautious in both their capital expenditure and hiring policies. Businessmen who are not anticipating a pickup in sales this year are primarily located in the extreme eastern and western portions of the District. In addition, one large Twin Cities manufacturer, who had large layoffs in 1970, is concerned enough about the outlook to be predicting further layoffs if business does not improve.
The cautious hiring policies of area businessmen is evident from activity at State Employment Service offices. A telephone survey of 22 nonmetropolitan Minnesota State Employment Office managers disclosed that employers in their areas generally have no plans to do any other-than-seasonal hiring in the next few weeks. Also, 17 of these managers indicated that some unemployed workers had returned to their home areas from the Twin Cities.
The results of our latest quarterly industrial expectations survey, taken early in February, tend to confirm the observations of the bank directors. The survey's manufacturing respondents do not foresee any significant sales improvements in the early months of this year. But sales should rise later this spring and continue to improve throughout the third quarter. Although sales are expected to match last year's levels in the current quarter, they are anticipated to be 3.6 percent higher than a year earlier in the second quarter, before advancing 8.8 percent in the third.
The expected improvement in district industrial sales later this year can be traced to durable goods manufacturers, primarily those in the electrical and nonelectrical machinery industries. Both of these industries have had severe drops in sales over the last year, but expect to rebound quite sharply by the third quarter of this year. In addition, manufacturers in the primary metals, fabricated metals, transportation equipment, and scientific instrument industries expected strong increases in third quarter sales.
Sales gains in the nondurable goods industries are not expected to be as dramatic as in durable goods industries, but these manufacturers also foresee definite improvements by the third quarter.
For the most part, the directors of this bank expressed
disappointment with President Nixon's recent suspension of the
Davis-Bacon Act provisions and felt that substantially stronger
action was needed. One director felt that the unions "called his
bluff, and that (President Nixon's) action was a weak-kneed backdown
after all that conversation." Construction people privately feel
that suspension of the Davis-Bacon Act will have no effect on the
rise in construction costs. One director, while disillusioned with
the president's specific action, did feel that further steps could
be taken in the future if construction costs continue to rise.
Another director, who is opposed to wage and price controls in
principle, favored the Administration's action to suspend the Davis-Bacon provisions. According to him, the
Davis-Bacon Act supported
artificially high construction wages in his area, and wages will not
return to normal levels.