Beige Book: National Summary
December 19, 1972
Economic activity around the Nation is maintaining its forward momentum according to reports from the twelve Districts. And, the outlook for 1973 ranges from optimistic in several Districts to "almost universally ebullient" in the Seventh District. Orders, inventories, and shipments of manufacturers were reported on the rise, and manufacturing employment is expanding. Retail sales are strong, and the 1972 Christmas season is expected to result in sales well above the 1971 level. Construction activity has generally remained at high levels or expanded further, but signs of weakness in construction were noted by several Districts. With the economy continuing to expand, shortages of labor and materials were noted as emerging problems. Wet weather has curtailed the harvest of several crops and inflicted some losses, but the overall farm income situation remains favorable. Loan demand continues strong at banks, but trends in deposits have varied significantly between Districts.
Manufacturing activity was reported on a noticeable upswing according to survey results reported by the Cleveland, Richmond, and Minneapolis banks. Steel shipments were cited as especially strong in the Cleveland report, and steel economists predicted a record year for steel shipments in 1973. Chicago noted that auto and truck production was at high levels and further gains were expected in 1973. However, in the Philadelphia District, manufacturers reported a lull in their December orders while maintaining an optimistic view about the next six-month period.
The increase in business activity continues to generate expectations of higher levels of capital spending. Several directors of the Boston bank anticipated large increases in capital spending in 1973 because of the approach of production to capacity levels. Atlanta reported that the construction of numerous small plants had been announced recently in the Southeast, and Chicago indicated that auto makers were accelerating their capital spending plans. However, St. Louis reported complaints from businessmen in their District that profit margins were not sufficient in some industries to stimulate plant and equipment spending even though utilization rates were near capacity.
Although construction activity is still characterized as strong in most Districts, there is growing concern about possible overbuilding of multi-family residential units. Cleveland, Boston, New York, San Francisco, and Minneapolis all indicated that apartment and/or condominium construction may be excessive in parts of their Districts. Although several Districts suggested the possibility of a decline in housing activity in 1973, the extent of the possible decline was not large. Builders in the St. Louis District were reported to be optimistic about further gains in construction in 1973, including an increase in single-family housing for the St. Louis metropolitan area. Atlanta reported numerous large-scale construction projects—both residential and nonresidential—in the Southeast, especially in Atlanta and in central Florida.
Retail sales are rising and the outlook for the months ahead is favorable. All of the Districts commenting on retail trade indicate that 1972 Christmas sales should be well ahead of last year. San Francisco and Chicago noted that luxury and "big ticket" items were selling well. And Kansas City reported that the strong auto sales included many of the more expensive models or models with large amounts of optional equipment. Although reporting retail sales as generally good, Minneapolis indicated that sales of winter recreational vehicles had not been up to the earlier expectations of one manufacturer.
Employment is expanding in most areas and declines in unemployment were mentioned by several Districts. Dallas reported a record level of employment in the Eleventh District states in October as a result of widespread gains. In the Third District, Philadelphia noted that the unemployment rate had fallen from 5.7 to 4.5 percent in the last three months. Atlanta indicated that unemployment rates in several southeastern states were at their lowest levels in years. With the gains in employment, some signs of labor shortages were reported by the Atlanta, St. Louis, Richmond, and Chicago Districts. And Chicago noted that turnover rates and absenteeism were rising at firms in the Seventh District.
The generally favorable agricultural situation has been set back somewhat by wet weather in the Midwest, Southeast, and Southwest that delayed the soybean, sorghum, and cotton harvests. Kansas City indicates that the production of soybeans and sorghum will fall below the November crop report estimate, and Atlanta cited a loss of 30 million bushels of soybeans in Tennessee. The extent of the losses in the Chicago District was uncertain, but it was noted that the overall farm outlook was still the most favorable in many years. Dallas reports that the cotton yield continues to look good, but the delay in harvesting may hurt the quality of the crop. While the wet weather hurt production in most areas, Florida citrus and vegetable growers were aided by the moisture.
Loan demand was reported to be generally strong by Dallas, Kansas City, and Richmond. Consumer installment loans and mortgage loans were mentioned as areas of strength by bankers in the Cleveland and Philadelphia Districts. The trend of bank deposits varied considerably among the Districts. Cleveland reported a strong rise in deposits while Kansas City and Philadelphia indicated that deposits were largely unchanged. Bankers in the Kansas City District are trying to attract additional deposits by offering higher rates on CD's than currently prevail in the New York market. Banks are apparently not experiencing a shortage of funds, and Cleveland reports that most banks in the Fourth District are highly liquid.