March 10, 1976
The picture that emerges from virtually all of this month's District reports is one of a resumption of a vigorous upswing in the economy following its pause late last year. Strong retail sales, including autos and other durable goods as well as nondurables, are reported by most Districts. Business inventories with a few exceptions are now in line with sales, and some restocking is getting under way, notably at the retail level, but also, if to a modest extent, at the manufacturing level. The residential construction outlook continues to brighten in several areas, although commercial and industrial construction generally remain sluggish. Against this background, the employment picture has been improving. Business attitudes towards capital expenditures, however, continue cautious. The outlook for the 1976 crop year is mixed. The demand for bank credit generally remains flat.
Virtually all Districts report further advances in the pace of consumer spending, with retail sales variously characterized as healthy, brisk, and stronger than expected. This trend, moreover, is generally expected to continue over the coming months, with a good Easter season in the offing and, as reported by one Bank (Philadelphia), with expectations that fall will be better than spring. Particularly encouraging were reports by most Banks that the improvement has been shared by both soft and hard goods. Across the board increases, broad-based strength, and dramatic improvement in major household appliance sales are mentioned in several reports (including Cleveland, Chicago, Richmond, and St. Louis). Strength in auto sales is mentioned in about half of the reports, and most
The strength in retail sales has improved the inventory picture at both the retail and the manufacturing level. Retail inventories are generally found in good shape and at or below desired levels, and a number of Banks report moderate efforts by retailers to rebuild depleted stocks (Philadelphia, Richmond, Atlanta, Chicago, and St. Louis). Cleveland, however, reports that retailers are not expected to build inventories until late this year. At the manufacturing level, Philadelphia reports that inventory liquidation has given way to a modest accumulation, while Dallas reports a rebuilding of chemical inventories by users, and a build-up of finished goods by producers. A strengthening in the demand for steel, aluminum, lumber products, and similar basic products is noted by some Banks (Cleveland, San Francisco, and St. Louis).
The gradual improvement in residential construction that had already begun to emerge in some areas continued in evidence over the past month, with a number of Banks reporting increased building activity (including Atlanta, St. Louis, and San Francisco). The improvement, however, as yet remains largely concentrated in single-family building (although Atlanta also reports an improved outlook for apartment building). Industrial and commercial construction have yet to show convincing signs of a revival.
The picture in the capital goods industry has brightened somewhat over the period but in general business outlays for plant and equipment continue to lag the recovery. Among others, Cleveland notes that while there has been some pick-up in orders of equipment from depressed 1975 levels, respondents in that District do not expect a sharp recovery until 1977; manufacturers in the Richmond District view plant capacity as still excessive; and Chicago reports the outlook for capital goods to be mixed.
The increased tempo of business activity finds its counterpart in a generally improved employment picture, with increased hirings and/or declining unemployment mentioned by a number of Banks (including Philadelphia, Richmond, St. Louis, and Chicago). More restrained reports, however, emanate from Boston and New York.
Reports from agricultural Districts regarding the outlook for 1976 crops are mixed. Kansas City and Dallas note substantial drought and wind damage to the winter wheat crop, but the former indicates that timely precipitation could improve production prospects considerably. Minneapolis reports that most of the District's agriculture has not been affected by drought, and prospects for a good winter wheat crop in the St. Louis District are reported excellent.
Most Banks report the demand for commercial bank loans in general continues flat, in part reflecting the higher level of corporate liquidity. Respondents in a number of Districts, however, note scattered evidence of some strengthening in loan demand (including Richmond, St. Louis, and Kansas City), and some mention expectations of a pick-up as the year progresses. Deposit inflows at thrift institutions generally remain good, and some increase in mortgage loan demand is noted.