February 9, 1977
Weather dominated the news in most Districts' reports. Cold weather drained natural gas supplies and resulted in widespread layoffs in some Districts, especially Atlanta, Philadelphia, Cleveland, Chicago, and New York and extensive crop damage in Florida. Nevertheless, the overall opinion seems to be that the economy shows signs of strengthening and losses in output and employment will be made up later in the year. Retail sales were particularly strong in several areas not affected by the weather, such as San Francisco and Boston, and also held up in Chicago and St. Louis despite severe weather. Housing activity shows signs of accelerating. Prices for manufactured goods are likely to be under upward pressures because of the high cost of alternate fuels and alternate transportation, and prices for fruits and vegetables are also expected to accelerate. Savings flows remain generally strong and rates paid on deposits are easing in some Districts.
Natural gas and fuel shortages apparently have their greatest effects on output and employment in Atlanta, Philadelphia, Cleveland, Chicago, and New York. An estimated 250,000 to 335,000 layoffs have resulted from fuel shortages in the Atlanta District. Approximately 175,000 workers were laid off in the Philadelphia District as a result of curtailments of natural gas and weather- related problems. Cleveland estimates that about 110,000 manufacturing workers were laid off as of early February, principally in steel, automotive, glass, and metal fabricating plants. Chicago notes that the most serious impact has been on steel plants in Indiana, where over 40,000 workers were laid off early in February. Automotive assembly plants in Michigan had layoffs because of parts shortages. Chicago and Cleveland said that many manufacturers have switched to alternate fuels, but deliveries have been slowed by frozen waterways and lack of carriers. As these deliveries have improved, many laid off workers have been recalled. New York also notes cutbacks in output and employment, especially in Buffalo and Rochester.
Slight to moderate effects of fuel shortages were noted in Richmond and St. Louis, but other Districts, including Boston, Minneapolis, and Dallas, were relatively unaffected either because alternate fuel supplies have been available or weather conditions have not been abnormal.
Despite widespread effects of fuel shortages and abnormal conditions, the tone of District reports still seems to indicate that losses in output and employment will eventually be recovered and economic activity will continue to strengthen. New York remarks that "business economists viewed the decline in production and employment as a temporary disruption," and Cleveland points out economists who met at that Bank on February 3 expect the expansion to continue through 1977 despite constraints on fuel supplies. The latest surveys by the Philadelphia and Richmond Banks indicate that respondents expect continued improvement in economic activity at least through the first half of 1977.
Consumer spending has been notably strong in some Districts, but fell sharply in some others especially in the last few weeks of the cold weather period. Boston, Chicago, St. Louis, and San Francisco note that retail sales in the last 2 months were strong; but New York and Philadelphia comment that sales in the last 2 weeks of January and early February fell sharply, apparently in response to severe weather. Retailers, although optimistic, are concerned over effects of high fuel bills on discretionary spending.
Construction activity, especially housing, appears to show signs of accelerating. Substantial strength in housing starts is noted in Dallas and San Francisco. Forecasts of housing starts in the Chicago District have been increased because of the large volume of funds available from savings and loan associations and life insurance companies. Dallas remarks that one homebuilder plans to boost starts by a fourth this year in Dallas, Ft. Worth, and Houston. Starts in several areas of the San Francisco District have increased 30 to 50 percent from last year. Both Dallas and Atlanta report mobile home sales have strengthened. Similarly, signs of revival in multi-family construction are noted in the southwest and west coast areas. Shortages of building materials, including lumber, brick, cement, plastic pipe, wallboard, and insulation, may develop this year according to Chicago and Dallas.
Adverse weather conditions in Atlanta, Minneapolis, and San Francisco have caused extensive damage to crops and concern over future prospects for agriculture in those Districts. Florida's fruit, sugar cane, and vegetable crops, except celery and lettuce, have been severely damaged by freezing weather. Citrus fruit losses are estimated between 25 and 35 percent of the unharvested crop. Last year's drought and lack of moisture caused considerable concern to farmers and bankers in the Minneapolis District. Low farm commodities prices and low production in drought-stricken areas are cutting farm spending. The need for refinancing appears to have increased, but bankers are concerned about the ability of farmers to continue payments even on existing loans. Lack of rainfall in the west is curtailing hydro-electric power output. According to San Francisco, the Bonneville Power Administration has stopped the flow of interruptible power to aluminum and chemical plants in the northwest and plans for allocating water to farm and residential areas are underway in most States. Agriculture prices will apparently be under upward price pressures because of adverse weather conditions. Sharp increases in prices for agricultural commodities this year are expected by San Francisco, and Atlanta points out that vegetable, citrus crops, and livestock prices are likely to increase as a result of a severe freeze in Florida. However, ample supplies of red meat and pork should hold down increases in overall food prices, at least for the first half of 1977 according to Kansas City. Large beef supplies in the first half are likely to be followed by smaller supplies and higher prices in the second half of 1977. Upward price pressures on industrial commodities are likely to intensify because of higher costs of alternate fuel oil and higher costs of alternate modes of transportation.
Business loan demand remains generally sluggish in Districts that commented. However, a considerable pickup in credit demand from oil distributors to finance inventories is noted in Philadelphia, and Kansas City notes strong loan demand by coal mining and oil drilling firms. Easing in rates paid on time and savings deposits and on saving certificates has occurred in Dallas and St. Louis; but some thrift institutions in Cleveland, which only last month reduced rates on passbook savings accounts and on certificates, raised rates because of loss of deposits.