Beige Book Report: Boston
May 20, 1970
Discussions Monday (May 18) and last Friday with First District Reserve bank directors and other area business leaders failed to turn up any traces of a crisis mentality in the business community. Those participants, including representatives of banking, retailing, and a wide diversity of manufacturing activities, generally showed a restrained but marked bullishness.
The primary explanation for this outlook was found in the common tendency to focus on a two to three year period for planning purposes, while placing little or no emphasis on the adverse developments which may occur in the next two to three quarters. In short, the businessmen are focusing on the far side of the valley, having already discounted any reasonable downturn which might develop this year.
In support of this psychology, it may be noted that a common remark of both merchants and manufacturers was that volume is holding up well, but profits are off sharply. Nevertheless, no instances were found in which this had yet led to a curtailment of capital expenditure plans for the rest of 1970, and corroborating evidence of this is found in the observation of three different commercial bankers that business loan demand had risen to historic highs in the last week or two at their institutions. They also uniformly noted that current interest rate levels are in no way deterring commercial loan demand.
Very little mention of the depressed state of the stock market was noted among the business leaders contacted, suggesting that they tend to view it as a separate entity, with few potential "spillover effects" on the course of real economic activity. Nor did the trucking strike elicit much comment as a depressing factor. Apparently, the wholesale and retail sectors have largely escaped any severe effects by means of a greatly increased reliance on the United Parcel Service, and in some instances, parcel post. Among manufacturers, serious truck strike effects seem to be highly spotty. As an example of firms which have been affected, the Cabot Corporation, large supplier of raw materials to the tire industry, reports increasing shipments problems.
The machine tool and producers' durable industries present a mixed picture. The Torrington Corporation, large manufacturer of ball bearings for automotive use, has definitely felt the decline in auto production, but reports that orders in farm equipment and two-cycle engines have risen more than enough to offset it. Layoffs have been negligible, and capital expenditure plans revised only slightly. The Norton Corporation reports a similar situation in its machine tool lines, but notes a definite softening of orders in its industrial abrasives division. On the other hand, Mr. Keyser of our board of directors reports a statewide softening of machine tool activity in Vermont.
The recreation industry in northern New England has experienced record levels of revenues all winter and thus far into the spring, although merchants in these areas as well as on Cape Cod do report some slack in advance bookings for the coming summer.
On the financial side, commercial banks report their deposit situation as largely stable, with no prospects for normal growth in the near future. Such weakness as was reported seems concentrated in corporate CDs and individual demand deposits. Thrift institutions, on the other hand, are in a worse position, with May deposit losses already offsetting most of their March-April gains. One- to three-family residential housing sales have declined drastically over the winter in most of the New England urban areas, and apartment construction is also showing signs of letting down.
In summary, neither continued tightness in credit markets nor prospects for substantial declines in profit levels over the rest of the year have yet acted to dissuade the business community from its basic outlook. A marked letdown in consumer spending would probably do so, but no signs of one have developed to date.