Beige Book Report: Cleveland
January 14, 1976
Our directors and businessmen in the District are still cautious about prospects for business spending in the year ahead. Steel operations are recovering, and retail sales rose strongly during the Christmas season. Recovery in employment in the District remains weak. Deposit inflows continue strong, while loan demand—especially for business and mortgage loans—is still weak.
Capital goods producers report conditions are generally soft, although they note some improvement from lows early last year. One director and chief executive officer of an electrical machinery firm expects capital equipment markets will remain sluggish in 1976, and another director reports both capital goods and construction equipment markets are weak. Demand for mining machinery and other energy related equipment is still good. A bearings producer reports their business, which held up relatively well through the recession, has softened because of weaknesses in capital equipment, freight cars, and more recently energy-related markets. Heavy duty truck orders have picked up mildly from depressed levels of last year, but no significant improvement is expected until later this year. Several directors associated with manufacturing firms see little need for speculative buildup of inventories in 1976. A director associated with consumer products reports his inventories are back to normal.
Steel orders and production are recovering from the lows of last quarter. Steel economists expect orders this quarter will be at least 15 percent higher than last quarter.
Hedging against the February 1 increase in the tin plate prices, strengthened demand from auto producers, and a reduced rate of inventory liquidation are among factors that should boost steel operations this quarter. Last fall's steel price increases are holding well, with only scattered deviations from published prices by some small steel producers. Some steel economists apparently have adjusted their 1976 forecasts downward because of an expected slow recovery in capital goods. High costs of pollution equipment and uncertainty over environmental regulations that affect steel and some of its major customers, such as utilities, are hindering recovery in capital goods industries, according to one economist.
Recovery in manufacturing employment in the District is as about as slow as it was in the early stages of the 1971 recovery. There are still some scattered layoffs in the steel industry, but economists for major steel producers expect a steady but modest pickup in employment this quarter. Layoffs among capital-goods-producing industries appear to have stabilized, but one large producer, lacking orders, furloughed several hundred workers from late December to late January. The bulk of improvement in manufacturing employment has been in the rubber and plastics, glass, metal stamping, and automotive industries.
Retail sales during the Christmas season are described as very strong and best since 1973. Retailers in Youngstown, which has one of the highest unemployment rates in the District, report that the dollar volume of sales was at least 15 percent higher than a year earlier. A director associated with a major retail chain stated a sharp pickup in sales had reduced its inventories, and an economist with a national department store chain reported sales for December were very strong and, in real terms, equal to the December 1973 volume. He noted a pickup for appliances and furniture as well as further improvement in apparel. According to a financial officer with a $500 million discount chain, sales last month were higher than in 1974 but not back to prerecession levels. He commented that major appliances picked up for the first time since the decline late in 1973.
Net deposit inflows into banks and savings and loan associations were strong again in December, while business and mortgage loan demand was generally weak. A large mortgage banker and a production loan officer with one of the nation's largest banks commented that the supply of mortgage funds exceeds demand and that their lending rates are likely to be pared shortly. An officer with a large savings and loan expects mortgage lending to be slow for most of 1976 and also anticipates a reduction in their 8 3/4 percent lending rate in order to attract borrowers. One of the nation's largest builders of houses expects that new starts in the U.S. will rise to about 1.3 million to 1.5 million units in 1976 and that the average price of new houses will be up by about 10 percent from last year. A director reports construction costs, especially for concrete and lumber, have been rising sharply.