Cleveland: November 1971

Output, employment, and unemployment in the district are all showing some improvement. Steel industry economists, however, say the recovery in their industry is proceeding more slowly than they expected a month earlier. Preliminary results of our survey of manufacturers' capital spending indicate that substantial increases are planned for 1972 in the Cleveland and Cincinnati metropolitan areas. Recently, some of our directors have also reported signs of strengthening in a number of areas, but signs of sluggishness in certain capital goods areas persist.

Our index of manufacturing activity turned up in September, following sharp declines in July and August. On the other hand, the nationwide coal strike that began on October 1, which involved 80,000 workers, is having a severe impact in mining activity in the district. (The Fourth District accounts for more than one-third of the nation's bituminous coal production.) Nonfarm payroll employment also rose in September, following three consecutive monthly declines. The district's insured unemployment rate rose noticeably from June to September, and then started to decline in October. However, unemployment is still high in some metropolitan areas, particularly steel centers.

Economists from four major steel companies in the district all reported an improvement in new orders last month, but they emphasized that the orders were well below normal October levels. Steel orders from the auto industry continue to be sparse. The auto companies are talking about resumption of normal ordering in December for January delivery, but they will not say how much. ("Normal" depends on the schedule for auto production.) Apparently, the auto companies are being cautious because of uncertainty about the course of new car sales after the price freeze ends. The economists noted that steel consumption, in general, has been running below their earlier expectations, and that the economy has to show more improvement than it has recently exhibited to get the steel industry back to a reasonable level of operations. A heavier than expected volume of imported steel is retarding customer inventory liquidation and prolonging sluggishness in domestic orders. The consensus is that it will be February or March before we can expect to have "normal" steel output.

Preliminary results of our semi-annual capital spending survey show that in the Cleveland area, more manufacturing firms have reduced than raised their spending plans for 1971 since our spring survey, and manufacturing firms are planning a significant rise in the dollar volume of spending for 1972.

Reports from some of our directors indicate some recent strengthening in business activity in a number of areas, while others involved with certain types of capital goods report continued sluggishness. One report of a strong increase in new orders in recent weeks came from a director associated with a large computer and business equipment manufacturer.

The improvement was in a number of the firms' product lines and came from a wide variety of customers. There was some indication that some of the improvement may have come at the expense of foreign competition. Another director from a highly-diversified manufacturing firm reported a recent widespread improvement in new orders for a number of the firms' divisions, but he also noted continued weakness in government-related business and aerospace activity. Another director reported that the situation in the machine tool industry remains extremely depressed and that there are no signs of an improvement over the near term. This same director noted a growing amount of skepticism among business associates about the likelihood of success in holding down wage increases under the administrative structure set up to direct Phase II of the President's new economic program. Persistent sluggishness was also reported by a director whose firm manufactures a number of specialty gear items; this director noted that a recent "stretch-out" in the production of rapid transit equipment had an adverse effect on the firm's sales.