Beige Book: National Summary
October 13, 1976
District reports generally suggest some recent moderation in the pace of overall economic expansion as well as in the rate of inflation. For the most part the manufacturing sector continues to expand but at what is characterized as a sluggish, modest, or less vigorous rate. Retail sales have been erratic in recent months but are apparently increasing at a moderate rate over time. New automobiles are selling well in the Atlanta, Chicago, and Minneapolis Districts. Current outlays for capital goods have yet to improve significantly. New York and Cleveland, however, report a pickup in capital goods orders. Construction of single-family housing is showing strength in the Chicago, Minneapolis, and Dallas Districts and remains firm in St. Louis' District despite some recent leveling off. Other construction remains basically weak except in the Atlanta District. The agricultural sector remains depressed, suffering from the recent drought, soft commodity prices and erratic weather conditions. Most districts appear to be experiencing some abatement of upward price pressures but price expectations have not been affected uniformly. Soft demand, slower growth, and excess capacity are causing downward revisions of some inflation forecasts. On the other hand, New York, Cleveland, and Kansas City cite continued concern over inflation among some businessmen, due to continuing cost pressures, notably wage settlements in excess of productivity gains, rising energy prices, and the higher costs of new plants.
Chicago, Richmond, Cleveland, and Atlanta report some recent pickup in orders for machinery and electrical equipment. Primary metals producers continue to experience sluggish demand although New York Directors expect demand to strengthen in the near term. Manufacturing in the Philadelphia District is generally expanding while San Francisco notes unexpectedly strong orders for commercial aircraft, which has contributed to a leveling off in the aerospace industry.
Retailers have been experiencing wide month-to-month variations in sales, and September seems to have been a generally weak month except in the Boston District and in the New York area where new-found strength in consumer spending extended into early October. Expectations regarding fourth quarter sales vary across districts but what is widely perceived as erratic consumer behavior is apparently creating a mood of caution and uncertainty among retailers. On a more positive note, Chicago reports that sales of television sets are up significantly although still below expectations. Sales of new automobiles seem to be proceeding well, with the strike having only minor and scattered effects. Minneapolis and St. Louis report some spot shortages, such as of full- and intermediate-sized cars. Tourism appears relatively strong although some areas have yet to experience the expected level of activity. Chicago reports consumers spending freely for travel and entertainment.
Some strength appears to have developed in residential construction, particularly in the Minneapolis, Chicago, Atlanta, St. Louis, and Dallas Districts. But with the exception of Atlanta and Chicago the pickup seems to be concentrated in single-family dwellings. Minneapolis reports that housing unit authorizations have reached 1972 levels. Commercial and industrial construction remains basically soft although Atlanta and Chicago suggest some revival of interest in this area.
The overall level of business loan demand remains weak nationwide. Kansas City, Philadelphia, St. Louis, and Dallas report little sign of renewed strength in business loan demand. Richmond, on the other hand, reports a healthy increase in loans during September. Only in agricultural lending does there seem to be consistent strength. Dallas, Minneapolis, and Kansas City point to particular strength in this sector, which they attribute partly to producers holding commodities off of the markets.
News from the agricultural sector is generally gloomy, at least from the standpoint of farmers. Widespread drought and erratic rainfall have been disruptive, causing reduced yields on many crops, while what are perceived as low prices are discouraging farmers from marketing some crops and livestock. Kansas City in particular notes that the weakness in prices of Tenth District agricultural products is putting producers in a precarious financial position. Specifically, low prices for wheat, rice, and cattle are reported to be depressing factors. Minneapolis expects the reduced crop yields due to the drought and the depressed livestock industry to adversely affect income. Richmond District farmers, on the other hand, have experienced an increase, although slight, in cash farm income.
There seems to be no general concern over supply or capacity constraints. Boston foresees no problems other than perhaps in the lumber industry. Chicago mentions some lengthening of lead times for electrical components, and in the St. Louis District a manufacturer of diesel engines is reportedly operating at capacity and extending order backlogs into next year.
The most commonly held view of future price developments is that the inflation rate will decline further due to a moderation in demand. Atlanta, New York, St. Louis, Minneapolis, and Richmond all suggest expectations of some further decline in the rate of price increases. New York, Cleveland, and Kansas City, however, indicate continued concern over inflation. Continuing cost pressures deriving from imminent wage negotiations, rising energy costs, and higher costs of plant expansion are cited by these districts.