March 9, 1971
Area executives expect the mild business expansion to continue. Nevertheless, the outlook is still mixed. Thus, some industries, such as paper, see no improvements. Retailers are not expecting strong consumer demand this spring. Bankers are caught in a profit squeeze and several of those we contacted saw no early pick-up in loan demand. On the other hand, there are some hopeful signs. For example, the number of manufacturers experiencing increases in sales and new orders far outweighs those realizing decreases. But, the evidence is still not convincing that a substantial recovery is underway.
Area executives expect the mild business expansion, which got underway in January, to continue. Thus, our latest business outlook survey shows that for February more than five times as many manufacturers polled in the Third Federal Reserve District are registering increases in sales and new orders as are realizing decreases. However, the business outlook is still mixed. Thus, one of our Directors reports that prospects for the paper industry are unchanged and gloomy. Another Director, whose company makes fabricated metal products, reports his own firm is doing well because of orders from the power industry, but that reports from other industries with which he has contact are uniformly gloomy. Nevertheless, a number of regional executives are mildly optimistic about March. But part of their optimism reflects an expected rebound from the business depressing effects of the GM strike rather than a major shift in economic trends. Consequently, area businessmen are reluctant to hire additional employees until more solid evidence of a recovery is apparent.
District retailers report that in February consumer purchasing fell back to the level of last year. One pointed out that considering that sales were flat all last spring, this is not very comforting. Durable sales are still running behind a year ago, but not by as much as they were a few months ago. Some of the current weakness may be because of the apprehension and uncertainty about the size of the Pennsylvania state income tax.
A number of retailers are concerned that not much more is in the works for spring. Another flip to demand through special sales is less likely in the months ahead because no additional discounts are likely to be forthcoming from manufacturers. They are watching very closely so as not to become overstocked again.
On the financial side, a majority of the city banks report loan demand is soggy. One bank, however, does report a noticeable strengthening of loan demand, and several are optimistic about developments in the spring. All of the banks are concerned with the decline in short-term rates and the developing profit squeeze. As they see it, they are limited in what they can do about the squeeze which some of them expect to get worse. Labor costs are rising, loan demand is too weak to justify increases in lending rates, and cost of some sources of funds still is relatively high. Some of the banks say that quality of credit continues to be a problem. None of the banks, however, reports any progressive deterioration in credit quality is discernible now, although a number of soured loans have yet to be worked out.
Several of the banks report continuing concern with the inflation problem; some volunteered comments on their concern about the potential inflation impact of the administration's economic goals for 1971.