July 14, 1976
The prospect is for a sustained economic expansion in the last half of the year. Although the majority of the Districts report that activity moderated in the second quarter, the outlook for the rest of the year is optimistic. Retail sales, although somewhat weaker this quarter, are expected to pick up. Manufacturing output shows little sign of weakness and it is not being hampered at this time by capacity limitations. Generally inventories are being kept under control and no build-up is anticipated. Residential construction continues to recover in most Districts but multiple-housing and commercial construction remains weak. Despite some problems with weather conditions, agricultural prospects are good. Demand for business loans continues sluggish in most Districts.
The growth of retail sales slowed somewhat in the second quarter in most regions. This slowing is expected to be temporary and retailers are optimistic about prospects for the rest of the year. Soft goods sales are generally good but major appliances exhibit more variation in demand. Some Districts (Chicago, Minneapolis) report weakness in appliance sales but others (Philadelphia) are experiencing good demand. Appliance manufacturers in the St. Louis District are experiencing a slowing of orders. Expenditures on tourism are high in most vacation areas (Atlanta, Philadelphia, Minneapolis).
Consumer spending for automobiles is high, and larger and intermediate sized models are in great demand. Some weakness is evident in small car sales. Chicago reports that the smallest auto producer which concentrates on small models has stopped assembly of 1976 models earlier than usual, while the larger manufacturers are pushing production of their large cars. At present, the strike of tire manufacturers is not causing problems for car manufacturers.
Manufacturing activity generally continues to expand. Demand for steel has increased (Chicago, Cleveland) and order books are full for flat rolled steel. Farm equipment sales show a mixed pattern. In Chicago, sales have exceeded expectations, but in Atlanta they are described as poor. Aircraft production prospects have improved primarily because of increased government contracts (St. Louis, San Francisco). The pattern is mixed for machine tools; Cleveland reports increased orders but Boston and Atlanta manufacturers' sales remain low.
For most industries, operating rates are below capacity. Capacity is being increased by many producers. Philadelphia notes that one-third of its survey respondents plan to increase their plant and equipment expenditures. Producers of aluminum, glass containers, and certain plastics are approaching full capacity. Shortages are not widespread although manufacturers may face problems in obtaining sufficient natural gas supplies (Chicago, San Francisco). Gasoline is not expected to be in short supply this summer, but New York reports a forecast of tighter supplies later in the year.
No major build-up in inventories is in prospect. Most retailers and manufacturers regard their inventories as adequate, however in the Richmond District, 70 percent of retailers surveyed thought their inventories were excessive. Retailers are following a cautious policy in rebuilding stocks despite an optimistic sales outlook (Boston, New York, Philadelphia, St. Louis, San Francisco).
Residential construction is recovering at a moderate rate in most Districts and it is described as good in the Kansas City District. Some concern is expressed about the effect of higher prices dampening the growth of sales (St. Louis, Minneapolis). Multiple-housing and heavy construction remains weak; Dallas reports the greatest weakness is in highway construction.
The agriculture outlook for most crops appears to be improving. Drought conditions have ended in several Districts (Minneapolis, St. Louis) and yields are expected to be good while prices will be firm. St. Louis and Atlanta note that cotton acreage is being reduced because of wet weather. Cattle prices may recover later this year, but they have been falling recently. Low prices have resulted in less cattle being placed on feed (Dallas). Kansas City reports excellent prospects for the wheat crop in its District, although nationally the crop should be lower than in 1975. Crops such as soybeans and corn are likely to be larger than last year according to Chicago, St. Louis and Atlanta.
Commercial banks are experiencing sluggish business loan demand and
little strengthening is expected. The major exception is Kansas City
where strong increases are reported. Consumer lending in the Boston
District is relatively strong. Boston and New York banks are
experiencing strong competition from savings institutions whose
deposit-accepting and lending powers have been increased. Cleveland
and Kansas City savings and loan associations report strong mortgage
loan demand.