June 23, 1971
Although directors of this bank have not experienced any significant increases in wholesale prices in their businesses over the past month, they are not optimistic in expectations of future costs and prices. Capital spending plans among district businessmen, while still relatively bearish, do not seem to have changed since the beginning of the year. Retailers did not experience any significant rise in consumer spending in the past few weeks but are still optimistic in their sales forecasts. Meanwhile, tourist activity, which is beginning to expand seasonally, is expected to rise about 6 to 10 percent this year over last.
Contrary to what would be expected because of the significant rise in the wholesale price index during May, the directors of this bank were generally unaware of any significant price changes in their businesses over the past month. Among industries with recent price increases are packaging materials, wholesale groceries, construction, and raw materials used in manufacturing heavy equipment. A number of directors, however, were able to cite cases where prices had actually declined over the past month—most notably, ready-to-wear clothing and apparel industries. One director felt that these recent reductions, primarily caused by an increase in foreign competition, were large enough so that retail clothing prices this summer will not be higher than they were last year. Wholesale cattle prices also have slipped in the past few weeks.
The directors did not view these recent price reductions as indications of curtailment in inflation; the prevailing opinion still seems to be that prices will continue to rise. In the construction industry, for example, increases in steel are expected later on this summer, and another general round of price rises are anticipated after January 1 of next year. One director, who is the president of a utilities firm, said that, "purchasing agents, with few exceptions, continue to think of rather large price increases as a way of life. When anticipating future outlays, the big question is whether to build in expected cost increases of 7 to 10 percent."
Manufacturers in the Ninth District apparently have not changed their expectations regarding capital spending plans. Investment throughout the district is at a reduced level, but this is the result of decisions made as early as 1969 and not because area businessmen have recently reduced their anticipations.
Consumer spending has not changed in the past few weeks, although retailers continue to be optimistic. The directors felt that auto sales in the district were doing a little better than earlier in the year, despite a tendency for consumers to buy lower-priced units. Department store sales also appear to have picked up, largely because of the recent changes in fashions.
It is still early in the season, yet tourist operators throughout the district are already expecting an increase in summer tourist travel. A number of directors have noticed a significant increase in campers and trailers on the road, and advance reservations at resorts and motels suggest that tourist activity in the district will rise about 6 to 10 percent this year.
Mortgage interest rates in the Twin Cities have become slightly more restrictive in the past few weeks. Whereas government-insured mortgages in the Twin Cities were down to around 7 percent plus 2 points to the seller as recently as a month ago, a minimum of 3 points is now being charged to the seller. A number of lenders also have raised conventional mortgage rates to 7 3/4 percent from the 7 1/2 percent which prevailed three weeks ago.