Beige Book: National Summary
January 13, 1977
This month's District reports strongly suggest that the "pause" in the current recovery has ended and that the pace of business activity is regaining momentum. Virtually all reports indicate some improvement in economic activity. Retailers generally enjoyed a good to excellent Christmas season, with sales strengthening markedly toward the close of the season and with continued strength evident in early January. Business inventories appear to be in line with desired levels, except for scattered exceptions. There is additional evidence of strengthening in residential construction. While the capital investment picture remains mixed, there appears to be mounting evidence of an impending improvement in that sector. Prices, however, continue under upward pressures. The demand for commercial loans remains generally sluggish, and inflows into savings deposits continue at a high rate.
As it has throughout the current recovery, consumer spending continues to provide the main thrust to the upswing. Retailers on the whole enjoyed a good Christmas season, with general merchandise sales rising above year-ago levels, in line with or exceeding expectations. The retail sales performance varied widely, however, ranging from unexpectedly strong and generally excellent (Boston, Chicago, St. Louis, and San Francisco) to above last year (Philadelphia, New York) and to a more restrained slightly improved (Richmond) and not overly strong (Kansas City). Auto sales, particularly those of standard or large size vehicles, are also mentioned as being particularly brisk by several Banks (including Minneapolis, Atlanta, Kansas City, and San Francisco). Although several Banks note that the improvement was achieved at least in part by dint of markdowns and other aggressive promotional activities, Chicago and New York report that by and large such activities did not reach exceptional proportions. A number of Banks report that the uptrend in sales that emerged as Christmas approached has continued in evidence in the immediate post-holiday period and early January. Atlanta and St. Louis thus report excellent results in post-Christmas promotions, and retail respondents in several Districts are reported to be cautiously optimistic regarding developments over the coming months. Respondents in the Minneapolis District feel that consumer confidence has improved since the election, but retailers in the Philadelphia District look for only moderate growth during 1977, with a sluggish first half.
Those comments that were received on residential housing suggest that consumer outlays for new homes continue to gather momentum. San Francisco reports that the residential housing market is very strong and continues to strengthen each month, and Minneapolis notes that District authorizations of new housing are close to 1972's record levels. St. Louis reports homebuilding made considerable progress in that District in 1976 and that prospects are for further gains this year, while Dallas respondents expect homebuilding will continue to be a major source of strength in the southwestern economy. Boston, however, characterizes residential construction as a major weak spot in the New England economy.
Inventories at the retail and/or manufacturing level were generally regarded to be about in line with sales and at desired levels, although there are scattered reports of undesirably high stocks of certain items, including some nonferrous metals, furniture, T.V.s, and smaller cars. Few indications of shortages were reported with the exception of an actual or potential dearth of natural gas mentioned by Richmond, Cleveland, and Minneapolis, as well as fuel oil in the Minneapolis District.
Turning to business expenditures for plant and equipment, the pace of such outlays by and large continues to lack vigor, but there is growing evidence that a pickup in this sector might be getting under way. Thus, among others, Cleveland reports rising activity in the machine tool, communications equipment, printing equipment and heavy duty truck industries. Chicago reports a pickup in orders for mining equipment, a further expansion of planned equipment purchases by auto companies, and alludes to the prospects that various major projects kept on the "back burner" by the food processing, paper, chemical, and glass industries might be activated this year. Although St. Louis characterizes prospects for capital spending as mixed, it reports several announcements of sizable investment plans for 1977, and Atlanta reports that new industrial expansion continues rapid in its District. About one third of the manufacturers surveyed monthly by Philadelphia plan increases in capital expenditures over the coming months. Respondents in the San Francisco District feel that tax incentives would have positive, albeit slight, effects in stimulating capital investments, if such incentives were made a permanent part of the tax structure. Respondents in Dallas and New York felt that major capital outlays would be deferred until the direction of government policy became clearer.
On the dark side, indications of increased upward pressure on prices were reported. Respondents in the Philadelphia monthly survey report that higher prices and costs are somewhat more widespread than in December, while in the latest Cleveland survey, the proportion of respondents expecting price increases remained as high as in the previous two months. Recent price increases in the steel industry are reported to be sticking, according to observers in the Chicago and New York Districts, although respondents indicate discounting of steel prices in the San Francisco District. Reports from agricultural areas of the nation note the relatively low prices currently paid producers for grains and certain other agricultural commodities as a result of record crops. Kansas City reports that earlier concerns over the District's winter wheat crop have been allayed by an extensive snowfall that has provided needed moisture as well as a protective snow cover. While grain prices may thus be held down, farmers are reported to expect rising cattle prices.
The demand for business loans at commercial banks generally continues sluggish, although loans to agriculture strengthened. Inflows into time and savings accounts continue at a high level, with consequent downward pressure on mortgage rates. Several District reports indicate reductions in rates paid on consumer time certificates, or consideration being given to such cuts, and Cleveland reports reductions in rates paid on passbook accounts at banks in several cities of the District.