November 12, 1975
A varied economic picture emerges in current reports from the Sixth District. Consumers appear to be economizing by changing their buying habits. However, retailers expect a strong holiday selling season, with the exception of more expensive merchandise. Inventories of some retailers may be inadequate should strong growth occur in demand. Divergent trends are apparent in recent price developments. Production cutbacks are still occurring in certain industries, while others are operating at peak capacity. In the district's agricultural sector, record numbers of livestock have been sold and harvests have progressed rapidly.
Evidence has appeared in several areas of the Sixth District that consumers are "trading down" in their purchasing decisions. A large furniture company reports a preference for more economical furniture. Medium-priced furniture lines appear to be doing particularly well. Similarly, apartment dwellers are moving from more to less expensive apartments. A large department store, which has enjoyed strong sales increases since August, reports that the results of its discount operation exceed those for the parent store. A major sporting goods retailer reports that good quality merchandise of all kinds is selling well but that sales of expensive goods are slow. A supermarket chain reports that customers have been switching from brand names to less expensive private label products. Finally, a nationwide distributor of automotive replacement parts attributes a strong sales increase directly to the tendency of people to maintain and repair their present cars during periods of economic weakness rather than buy new automobiles.
Retailers, in general, express the opinion that consumers are reluctant to purchase big-ticket items. They expect this reluctance to continue through the Christmas season. In other types of merchandise, retailers expect a strong holiday selling season. Retail store inventories are described by several sources as thin. Shortages due to cautious inventory rebuilding may result in missed sales during the holiday buying season. A representative of one major department store believes inventory may be low; that store is not poised for a strong business expansion. A nationwide retail chain reports that it is rebuilding its inventories at a modest pace. Sporting goods and fashion goods retailers report that deliveries are slow.
Reports concerning nonretail inventories include the note that steel and aluminum are in abundant supply. Also, a large construction company reports difficulty in obtaining delivery of large dump trucks because manufacturers are producing the most easily made goods. Bottlenecks are noted in mining equipment, heavy equipment in general, and transformers, because of limited capacity in these industries.
In construction a large company reports that the major sources of its jobs are the Alaska pipeline and projects for chemical and nuclear power companies. Small jobs are hard to come by. An absence of new speculative construction activity is noted in southeastern office construction and residential construction.
A mixed pattern of price information includes a report by one large municipality that the price of buses is rising at a rate of 1 1/2 percent per month. A large furniture company anticipates an increase in furniture prices of 5 to 10 percent in the near future due to increasing petrochemical prices. A major retailer notes that some price increases for apparel have occurred, but nothing dramatic. Coal prices are reported to have softened recently. A fertilizer manufacturer reports that his prices have decreased lately, reflecting reduced usage of fertilizer because of high prices and increased capacity in the industry; but supplies of fertilizer products which use natural gas as a feedstock are likely to be curtailed next spring. A construction company indicates that environmental protection requirements add 15 to 20 percent to the total cost of construction. A large paper products company reports cancellation of new capital spending plans because the investment was made uneconomical by increases in the cost of pollution control. A sign manufacturer complains that OASHI fines and costs of compliance have resulted in price increases of 7 percent and have also caused him to close one plant.
A construction company reports that steel companies are demanding escalator clauses in contracts for delivery next year. Construction companies note an abundance of steel products and declines in prices. Low steel production levels and recent cutbacks in production are also noted. A manufacturer of cast iron confirms these tendencies. Orders have declined since 1973, with no sign of recovery. The company continues to trim its work force and feels inventories are still excessive. But the overcapacity problems and output reductions in the steel industry appear to be specific to the construction-related sector.
A foundry which specializes in products used in mining reports a six-month backlog and is operating at full capacity after recent expansions. A casting operation reports a large increase in orders for products used in aircraft, automobiles, and earth-moving equipment. A furniture manufacturer reports an upward movement in its business throughout the third quarter, with strength concentrated in the medium- to-high end of the business. Finally, a producer of reading and education materials reports that sales to tax-supported institutions are declining as a result of cutbacks induced by a falloff of tax revenues.
Cattlemen are moving range livestock to market in record volume in an apparent effort to avoid expensive feeding through the upcoming winter months. Light calves continue to bring the lowest prices, typically ranging from 15 to 20 cents per pound. This is a reversal of the previous pattern of market prices, which declined with increases in the weight of animals. Crop harvests, though starting late, have progressed rapidly in the southeast's near-perfect weather during late October and early November.