April 12, 1972
On the whole, District banks report that the general business climate continues to improve. Industrial activity is increasing in most Districts, but gains on the employment front are less widespread. The retail sector shows signs of improvement in several Districts both for general items and automobiles. Capital spending plans have been stepped up in some Districts, but caution remains among businessmen in other areas. Construction, however, continues to be a strong sector in most of the regional economies. Loan demand at commercial banks, in general, shows increasing strength. Concern about inflation appears in several reports, but there is some evidence that food prices are stabilizing.
Industrial activity is on the upswing in most Districts. Richmond, Cleveland, Boston, and Philadelphia report continued increases in new orders and shipments at manufacturing firms. Other Districts also report gains, with business sentiment stabilized on a moderately optimistic level. Chicago notes particular strength in the steel industry while St. Louis reports improvement in steel and the consumer goods sector. Dallas attributes increases in industrial production in its District to an especially large boost in mining activity.
However, improving trends in business activity have yet to register a nationwide impact on employment. District reports remain mixed. Richmond, Philadelphia, and Boston find firms adding workers to their payrolls. Richmond also reports increases in hours worked per week. Other Districts (Cleveland, St. Louis, and Dallas) report little change in their overall employment picture. Chicago notes that layoffs have become fewer in recent months and many firms are hiring again after a long drought. Minneapolis expects employment growth to improve but not significantly in the second quarter.
The retail sector shows signs of improvement in several Districts. Richmond reports continuing strong sales, both in general retail items and in automobiles. Dallas cites sizeable gains in department store sales and new car registrations. San Francisco finds durables doing better than average and autos continuing steady. Other Districts (New York, Philadelphia, Cleveland, and Minneapolis) report only moderate improvement but more optimistic forecasts for future months.
Although capital spending plans have increased in some Districts, an aura of caution remains among businessmen elsewhere. Boston reports that expenditure plans range from unchanged to a 10 to 15 per cent increase over last year. Chicago also cites an improved investment outlook with orders for capital goods rising in recent months. St. Louis, however, finds investment remaining sluggish. Profits at area firms, although up, are not sufficient to merit additional capital outlays. San Francisco reports that business investment plans remain cautious with no major revision of expectations apparent.
Construction remains a bright spot in many of the regional economies. Kansas City reports housing starts are considerably ahead of last year and are expected to continue strong. Nonresidential construction is also expected to improve. Richmond, likewise, reports increases in both residential and nonresidential construction. New York reports continued strength but forecasts a possible flattening out in activity. Atlanta finds a near boom in construction in Florida. Other Districts (Cleveland, St. Louis, and Dallas), although reporting a leveling off or even a moderate decline, still show construction at high levels of activity.
Loan demand at commercial banks shows increasing strength. Philadelphia, Cleveland, Richmond, St. Louis, Kansas City, and Dallas report signs of improvement in demand conditions for business loans. New York and Chicago report more sluggish activity and regard alternative sources of funds for business as a prime reason for a slack in loan demand, both now and in the near future. Boston, Richmond, Kansas City, and San Francisco report strong mortgage demand. Richmond, Kansas City, and San Francisco also see increases in consumer installment loans.
Those District Banks reporting on the price situation generally express some reason for concern. Richmond, although noting few changes in prices received by trade and service or manufacturing concerns, reports increases in wages paid by these firms. Chicago reports upward pressure on a wide variety of raw materials. Boston cites many areas in which price increases have become common and, in some cases, quite large. Businessmen in the Boston area convey a growing disillusionment on the effectiveness of Phase II. This sentiment is also reported in the Minneapolis District. New York businessmen, although recognizing that Phase II is not fully adequate, nevertheless feel it is having a favorable impact on current developments.
In the agriculture sector, conditions appear to be improving. Farm income is up and crop production is normal or better. Spot checks by Kansas City at retail food chains reveal greater price stability than a month ago. Wholesale meat prices are expected to decline in the near term but retail prices less so. Dallas finds livestock conditions better than a year ago, with the number of cattle on feed up substantially. San Francisco reports cattle prices holding steady.