Beige Book Report: Cleveland
December 10, 1975
Recovery in the Fourth District continues to be spotty, with virtually no improvement in employment from last spring's low. Capital goods and steel remain weak, although signs of pickup are noted. Retailers are cautious in their predictions for Christmas sales. Deposit flows into savings and loans were again at high levels, according to some associations.
Nondurable goods producers continue to report strong recovery, and conditions in capital goods industries are mixed. Recovery in petrochemicals has been rapid, according to one producer, and sales have almost returned to pre-recessionary levels. A producer of plastics also reports a fast recovery, as sales in October and November rose more than expected. Production for this quarter is expected to be 15 percent greater than last quarter. An economist with a tire producer reports passenger tire sales continue to recover. Retail inventories are 15 percent below a year earlier, but manufacturers' inventories are still a little high.
Machine tool orders continue their gradual climb. One firm expects a 50-percent increase in orders during 1976, compared with a 60-percent drop experienced this year. Two mining machinery producers report a good order book; one has backlogs stretching into 1978. Orders for farm implements are also holding at high levels. A national producer of electrodes and welding equipment reports it is still allocating orders because of high demand from pipelines, mining, and shipbuilding. Its welding business this quarter is expected to be at least 5 percent higher than last quarter. Recovery from the slump in heavy duty trucks has been slow. A producer reports that truck sales for the first 10 months of this year were off 40 percent from the same period last year and that orders have been picking up slowly since last spring. He expects that uncertainty over government regulations on braking devices will hamper recovery. Demand for other types of capital goods, especially from construction and electric utilities, remains weak. One producer reports that orders for generators fell 50 percent during the recession and that little pickup is in sight. Construction machinery continues to weaken, and prospects are for continued weakness into 1976. A producer of lighting fixtures for streets and highways reports that public construction is also weak.
Steel orders have been picking up a little, although heavy inventory liquidation is holding down recovery in orders and production. Orders for January delivery are somewhat better than for December, and steel economists expect shipments for the first quarter of 1976 will rise 10 to 15 percent over the fourth quarter of 1975. Steel inventory liquidation next quarter is expected to be about half as large as in the present quarter. One economist reports that the October 1 steel price increases are holding despite some discounting from published prices.
This Bank's monthly survey of manufacturing for November suggests that the rate of increase in manufacturing activity in the District has flattened in the last two months. A preliminary report indicates an equal number of manufacturers had increases and decreases in new orders and shipments during November. For the first time in a year, more manufacturers built inventories than depleted inventories. Manufacturers also report no improvement in employment, and price increases were as pervasive in November as they were in August and September. For December, manufacturers expect another month of inventory buildup, virtually no gain in employment, and no abatement in upward price pressures.
Retailers are cautious in their appraisal of holiday sales. A financial officer for a large department store reports that sales in November were somewhat stronger than a year earlier, except for household goods, and that their inventories have been built in the hope of a better selling season this year than last year. An economist with a large national department store chain reports moderate improvements in unit sales of soft goods in recent months while sales of household goods remain weak. Both expect markdowns to be no greater than usual for this time of year, and both express concern that retail sales will not recover if income tax cuts are not extended into 1976.
Employment in the District has hardly improved from the low of last April. Scattered layoffs in the steel and machinery industries have offset a gradual pickup in some other industries, especially rubber, fabricated metals, and glass. A supplier to the automotive industry reports his firm laid off 5,000 workers during the recession and has no immediate plans to rehire them. A tire producer reports some recalls have occurred in response to strengthening production but that additional layoffs may be necessary in those lines that still have excessive inventories. Supplemental unemployment benefits funds are depleted for some tire company workers. One retailer reports it will hire more part-time help for the holiday season than it did a year ago but still less than normal, and another reports hirings will be about normal.
Net deposit inflows at savings and loans were strong in November. One association reports a record for the month, and another reports inflows were strong but below their record in October. Mortgage terms eased in recent weeks. The bulk of loans are for existing dwellings. Liquidity is generally well above requirements, although one association will borrow funds in order to finance its aggressive mortgage lending position.