September 13, 1972
The economic outlook for the Ninth District appears bright, according to bank directors and area manufacturers. Continued high retail sales expectations are reported by bank directors, who also describe the one-year results of the New Economic Policy as beneficial to their respective areas. Aided by the policy and greater demand for farm products, the District's agricultural sector is experiencing greatly improved income and optimism as well as increased investment. The results of our latest quarterly industrial expectations survey suggest continued expansion in District manufacturing activity.
Bank directors unanimously believe that retailers in their respective areas are expecting very good sales for the rest of 1972. Although a temporary slowdown occurred in August (two directors cited unusual weather conditions as the cause), most directors report that retailers' optimism has increased in the past four to eight weeks.
Directors from nonurban areas explain this stronger outlook partially as a result of strengthened income and overall financial situations in the agricultural sector. But two local developments are also seen as contributing factors: the construction of a large open-pit iron ore mine in upper peninsula Michigan and a gathering momentum in the development of fossil fuel production in southeastern Montana.
An improving business climate or noticeably rising general confidence is extensively reported by directors, most of whom feel that the past twelve months' experience with the New Economic Policy has been a major factor in creating this situation. Price-wage controls have apparently had noticeable effects throughout the District, and most directors feel that in their areas the greater effect has been on wages. According to a director from La Crosse, Wisconsin, restraint on the advance of labor costs has promoted greater economic activity locally and, without it, some significant cutbacks would have occurred.
Agriculture has also been aided by the New Economic Policy, states a director from Billings, Montana. Since farm product prices were not controlled, increased demand was allowed to pull them upward considerably while the policy restricted the advance of agricultural input prices.
Agricultural developments have been especially encouraging recently, according to all directors from agricultural areas. Regional beef markets demonstrated their strength, as prices received for feeder and partially fattened cattle held steady at very high levels despite an August decline in the price of fattened cattle. In addition, the price of wheat, another important District product, has risen rapidly, which increases the value of much District wheat held over from last year's production and a large crop now being harvested. A director from a wheat-producing area reports that, since the beginning of Russian purchasing, the price received by farmers for lower protein wheat has advanced from $1.16 per bushel to $1.46; for higher protein wheat, from $1.38 to $1.88. Throughout the District, wheat yields this year apparently are near last year's record highs.
Agriculture also appears to be the main beneficiary of another part of the New Economic Policy: according to three bank directors, the investment tax credit has greatly stimulated the purchasing of farm machinery and equipment this year. A director from South Dakota does not feel that investments induced by the tax credit have been confined to agriculture, yet urban directors are not able to identify any they feel have been significantly encouraged by it. Those reporting major construction projects in their areas, however, feel that investment related to these projects may have been accelerated.
Continued expansion in District manufacturing activity is foreseen by respondents to our third-quarter industrial expectations survey. The value of goods sold by District manufacturers surpassed last year's level by 9.5 percent in the second quarter and is expected to increase at a slightly faster rate during the last half of this year before recording a 7.5 percent gain in the first quarter of 1973. Durable goods producers were more optimistic than they were in the previous survey, but manufacturers of nondurables did not significantly revise their earlier sales expectations.
District manufacturers' favorable sales outlook is also reflected in their attitudes toward the adequacy of their inventories and plant and equipment. In the current survey, 20 percent of the respondents considered their inventories "low", 10 percent termed them "high", and the remaining 70 percent described them as "about right". One year earlier, 23 percent referred to their inventories as "low" and 11 percent "high". In addition, considering anticipated sales gains, 27 percent termed their plant and equipment capacity as "less than needed" and 12 percent regarded them "excessive". These percentages were reversed in the survey conducted in the third quarter of 1971 but, in both surveys, about 61 percent of the respondents felt their plant and equipment were "about right".