May 5, 1971
Economic activity in the Eleventh Federal Reserve District is expected to improve moderately between now and the year-end. This was the view expressed by a sample of university economists who periodically write analyses of economic conditions in the region. Most anticipated that the pace of overall economic activity would pick up somewhat but that no dramatic recovery was likely to take place. They felt that consumer sentiment would improve, leading to increased consumer expenditures-particularly for durable goods and housing. A majority of the respondents also expected that the increased purchases of housing would be stimulated by further declines in mortgage rates. However, most felt that bank lending rates and unemployment in the District would not decline much, if any, over the balance of the year. Moreover, nearly all anticipated that inflation would persist through the year-end.
A slim majority of the respondents felt that conditions in the District had improved somewhat as compared with a year ago. Those who described economic conditions as being weaker cited the local drought as a major factor. However, nearly everyone anticipated that the District would show some improvement by the end of the year, but very few thought this improvement would be marked.
All respondents felt that the consumer would play an important role in the recovery. Consumer confidence and, consequently, consumer spending are expected to pick up. As a result, many anticipated that retail sales, particularly of durable goods, would increase substantially.
Moreover, consumer demand for housing was viewed as being strong through the year-end. Consequently, most felt that construction activity in the District would continue to rise and be a major source of stimulus to the economic recovery. Some thought that a further downward movement in mortgage rates would bolster activity in the housing market, but these respondents anticipated that further declines in mortgage rates probably would be slight (about 1/2 percentage point), bottoming out in the fall. A few felt this year's low has already been reached.
The outlook for bank lending rates, unemployment, and prices was less optimistic. Most felt that bank lending rates would remain unchanged, or possibly increase somewhat, over the balance of the year. Similarly, a majority expected that the unemployment rate was likely to continue at the present level or rise slightly. And nearly everyone anticipated that inflation would remain a problem through the year-end. A few thought there would be no further decline in the rate of inflation by the end of the year.
At present, indicators suggest little improvement in District economic activity recently. For March, the Texas industrial production index and nonagricultural employment data for the Eleventh District states showed virtually no change from February. The component for durable goods in the production index continued at a level 10 percent below that for the corresponding month a year ago, due primarily to cutbacks in defense industries. Oil production in Texas is expected to fall by 1.4 percent in May, as the Texas Railroad Commission reduced oil allowables because of a seasonal slackening in demand and an improvement in international petroleum availability. But other District states kept their allowables at the high levels prevailing for the last several months. Drought conditions continue to have a major impact on the agricultural economy of the western areas of the Eleventh District. The Texas range condition was the lowest ever reported for April 1 since records were begun in 1923. As a result, farmers and ranchers have begun culling their livestock herds. Weekly department store sales for major metropolitan areas in the District continued to rise thus far in April.