Beige Book: National Summary
December 10, 1975
The economy continues to recover but at a lackluster pace. Stepped up consumer spending is providing the primary stimulus for continued growth. Retail sales have improved, and Christmas buying is expected to be strong. In addition, new car sales are well above year-earlier levels. Industrial production has leveled off as new orders have slowed and some inventory liquidation continues, particularly in durable goods industries. Recovery, however, is evident in some nondurable goods industries. The demand for labor is generally weak, and construction is depressed except for some modest pickup in single-family housing starts. Loan demand at commercial banks remains flat, and no substantial rebound is expected in the near term. Lower grain prices have provided greater incentive to increase livestock production.
Retail sales have quickened, and merchants are generally expecting a strong Christmas season. The improvement, according to San Francisco, is attributed to a diminution in the rate of price increases for general merchandise and improved consumer confidence. Philadelphia, Atlanta, St. Louis, and Minneapolis report durable goods are selling well; but Richmond, Cleveland, and Chicago note sales of household goods remain sluggish. November sales were held down by unseasonably warm weather, according to New York and Chicago, and Atlanta reports department store sales are weak in Florida. Auto sales are up substantially over year-earlier levels but remain well below the rates of two or three years ago.
The pace of overall manufacturing has slackened, and a return to a robust rate of production is not generally expected in the near term. The inflow of new orders has slowed, and some inventory liquidations continue, particularly in durable goods industries. New orders and shipments have fallen for the first time since midyear, according to Philadelphia. Chicago reports steel shipments are off, and some major projects to expand steel capacity in the Midwest are being re-evaluated. The rise in manufacturing employment and the average factory workweek has leveled off, especially in the eastern half of the country. The recovery in capital goods production is uneven according to Cleveland, Chicago, and Minneapolis. Producers in some depressed industries voiced optimism about a turnaround early next year.
While production is off in durable goods industries, some nondurable goods industries have staged strong recoveries. Cleveland, St. Louis, and Dallas cite impressive gains in the output of petrochemicals and related products. And apparel manufacturers have experienced a sharp increase in new orders according to New York and Dallas.
The strength of labor markets differs markedly from district to district. In the Southwest, the unemployment rate has dropped below 7 percent. The jobless rates in two New England states, by contrast, are double that rate. Cleveland also reports virtually no improvement in employment since the recessionary low last spring. And job markets in Georgia and Florida continue to deteriorate.
Bankers report a pickup in deposit inflows and a flat loan demand, especially for business loans. Kansas City reports a sharp falloff in loan requests from national accounts. Interest rates on business loans have edged downward according to St. Louis and Richmond. A slow recovery in loan demand is expected over the next three months by Philadelphia and Richmond. And Boston sees a pickup in business loan demand coming in late spring.
Residential construction remains weak in most areas, particularly for multi-family housing. Chicago, St. Louis, Minneapolis, and San Francisco note a revival in single-family starts. Home buying has picked up as mortgage rates have stabilized with a steady inflow of deposits at savings institutions. Both Philadelphia and Cleveland report active markets for existing housing. Kansas City finds no buyer resistance to present interest rates and, like Philadelphia, sees no pressures that would increase rates before March.
Nonresidential construction continues at a low level, as many manufacturers regard their current production capacities as adequate. Dallas reports the sluggish pace of nonresidential construction has curtailed the output of construction steel. San Francisco, however, notes some new projects have been undertaken recently. In addition, construction in the Atlanta area will receive a boost when work begins on a new rapid transit system.
A bumper harvest has led to a decline in grain prices. San Francisco reports farmers are complaining about the embargo on grain sales to Russia since these commodities are expected to be in heavy surplus. The reduction in grain prices, however, has provided greater incentive to increase livestock production according to St. Louis. Kansas City states the current trend in farm prices should lead to greater stability in food prices in the months ahead.