Beige Book: National Summary
December 15, 1976
Although many Districts report that activity over the past month has been sluggish or flat, almost as many report that the lull in activity is over and an uptrend has been resumed. Consumer spending is anticipated to be 8 to 10 percent higher this Christmas season than last although sales will not be this exuberant in agricultural areas where income gains are low this year. Residential housing has been picking up momentum over the past three months, generating capacity operations at lumber mills. There is some doubt as to whether the recent rash of posted price increases will stick. Business loan demand remains in the doldrums but inquiries at banks have picked up. Savings flows at thrift institutions continue to set new records.
Consumer spending is not expected to be exuberant over the Christmas season, nor is it expected to flag greatly. Gains over the last year on the order of 8 to 10 percent are anticipated depending on the amount of promotional effort expended. A larger proportion of sales this year involve the use of credit. As reported by Minneapolis, Richmond and Kansas City, spending is less buoyant in agricultural areas where income is running about 5 percent over last year. Inventories of big-ticket appliances continue to be high in the Northeast. Sales of large cars and intermediates are very strong but many reports state that the rebate program was unsuccessful in moving subcompacts. The Dallas District is experiencing more robust Christmas sales than elsewhere.
The coldest winter in 80 years is draining fuel supplies in the Midwest and, in some cases, raising home heating bills by 35 to 40 percent over last year. Observers in the oil industry in Dallas expect an OPEC price increase of 10 percent which would lead to a one cent per gallon increase in gasoline prices.
Although the most recent indicators of industrial new orders, employment and the workweek are down, this trend is generally regarded as a lull and is not expected to continue. There is some feeling that capital spending plans are being held up in anticipation of an investment tax credit and other possible changes from the new administration. The strength of residential construction reported by Dallas and San Francisco is already causing tight supply situations for lumber and gypsum in those areas. According to Cleveland, steel economists have reduced their forecasts of domestic steel shipments for 1977 from 105 million tons to about 100 million tons, compared with an estimated 89 million tons in 1976. Moreover, both the textile and apparel industries are reported by Richmond to be experiencing declining activity and capacity is regarded as excessive. The factors responsible are excessive inventories and higher imports of apparel.
It is unclear whether recent posted price increases for a wide range of basic materials such as flat-rolled steel, aluminum sheeting, chlorine and chlorine solvents and synthetic textiles will hold in today's markets. Some of these increases were unexpected and are being attributed to fear of the imposition of price controls. Although the consensus appears to be that these increases will stick, discounting seems to be a widespread practice.
In agriculture, livestock feeding operations continue to be unprofitable and some crops such as cotton had a below-normal yield this year. The winter wheat crop has been planted, but farmers are very concerned about the low level of soil moisture. Drought seems to be a real fear this year across much of the nation's farmland. Spending on new farm equipment and vehicles is down considerably and loan activity, especially refinancing, is up.
Business loan demand continues sluggish in all Districts. The Boston District reports that four noted economists interviewed by them believe that some stimulus is called for to avert an "incipient recession" and "...provide the strong financial climate for the strong investment performance which had been hoped for but not yet materialized." However, some bankers in Philadelphia, Dallas, and San Francisco have noted an increased number of encouraging conversations with corporate borrowers regarding additions to plant and equipment.
The heavy inflow of funds into thrift associations has continued
and, as a result, both mortgage rates and interest rates for savers
are declining. Some savings and loan institutions in Cleveland are
raising the size of minimum savings certificates and withdrawing the
offer of certificates with less than
2-year maturities. In some
areas, mortgage rates have declined from nine percent to 8 1/2
percent over the past month.