March 14, 1973
General business conditions are very favorable and improving in the Third District. Production activity is surging ahead strongly and is expected to continue to do so for at least the next six months. Labor markets are bullish, as many firms hire more workers and extend the length of their average workweek. The employment outlook for the next six months is up significantly too. Investment in inventory and plant and equipment is boosting the area economy, with plant and equipment increases mentioned more frequently than increases in inventory investment. Retail sales are recovering nicely from a lull after Christmas. On the darker side, however, inflationary expectations are high and rising. And, bankers are complaining about the Regulation Q interest rate ceilings.
Production activity is moving up strongly: 71 percent of the respondents to this month's business outlook survey report increases in their new orders, and 67 percent report increased shipments. Virtually none of the local manufacturers are currently experiencing decreases in production. On the six-month horizon, the production outlook is even brighter; almost 80 percent of the firms contacted expect increased shipments.
Employment in the Third District has improved significantly since last month. One quarter of the firms are increasing their number of employees, and one quarter are increasing the number of hours in their average workweek. Over 70 percent report no change in their number of employees or the length of their average workweek. The situations should improve further; half the firms report plans to hire more workers in the next six months.
Plant and equipment spending plans continue high at the level reported last month. Slightly over half the firms report plans to increase their investment in plant and equipment in the next six months.
Investment in inventory is increasing, at over a third of the firms responding to the survey; most of the rest report no change in inventories. This increased inventory investment is expected to be short-lived, however. Six months in the future almost as many firms report plans to decrease as to increase their inventories.
Local retailers report that consumers are spending liberally again after a lull following Christmas. Autos are selling very well. Inflationary expectations are high and rising. Over a third of the firms participating in the survey report increases in the prices they charge and the prices they pay. During the next six months over three fourths of the respondents expect to pay and to receive higher prices; this is a significant increase in inflationary expectations over last month. Virtually no firms report decreases in current prices or the prices they expect six months hence.
Area bankers report that demand deposits, time deposits, and savings deposits are all growing slowly. They complain that Regulation Q interest rate ceilings are hindering their ability to get deposits. Demand for mortgage loans is good, and these loans can be made if they are sought, but the bankers report that mortgage loans are increasingly unattractive as interest rates in other areas rise above the mortgage ceilings. Consumer loans and business loans are up nicely. However, one banker pointed out that his bank was suffering a loss of 60 basis points on all loans made at the prime rate when it is compared with the bank's weighted average cost of the capital.