Beige Book Report: Cleveland
May 20, 1970
Economic activity in the District has been disrupted during the past six weeks largely because of trucking strikes and strikes against several major rubber companies. Widespread campus disturbances in the District have forced a number of universities to close and undoubtedly have had an adverse impact on business conditions in local areas. This Bank's regular monthly survey of about 70 large manufacturing companies in the District reflected the softening in nationwide industrial activity last fall and early winter. Signs of a bottoming were evidenced in the survey taken in April, but the May survey revealed sharp setbacks during the month of April in key series such as new orders and shipments and a marked deterioration in employment and the workweek, presumably because of work stoppages. The District's insured unemployment rate, which had been edging moderately upward (from 1 percent last October to 2 percent in late March), jumped one percentage point during April to 3 percent.
At a meeting of about 40 business economists, held at the Bank on
May 15, there were mixed reports concerning recent price behavior.
The majority maintained that wage-cost pressures, in the face of
slack demand, are so great as to make it easy to "pass on" higher
prices. Some economists, however, reported "under the table"
discounting and price rebates, which presumably are not being
recorded in the official price indexes. Specifically, an economist
from a major rubber company said his firm's price index for tires,
based on actual transactions prices and reflecting the mix of
consumer purchases, had risen during the past year only about
one-third as much as the BLS price index for tires. Economists from the
chemical industries reported recent weakness in chemical prices and
noted that few chemical products were selling at list prices.
Other points of interest emerging from the meeting included a report by an economist from a large machine tool company in Cleveland that his firm was living off backlogs, that business booked in April was only one-quarter of what they would normally receive at this time of the year, and that they had not yet booked a single new order in May. Economists from two major auto companies believed the worst of the cutback in new car sales and production was over and that, following leveling tendencies in the second and third quarters, sales would recover later in the year. Economists from the steel industry expect the current favorable trade balance in steel to deteriorate later in the year, with a strong increase in imports and an easing in exports. On the other hand, the steel industry should soon begin to feel the effects of hedge buying in anticipation of a possible strike next year.
Among the comments received from this Bank's directors at a joint board meeting held on May 14, there were reports that markets for auto components and consumer electronics are becoming softer. One director said that one industry in which his firm is a major factor, flat glass, is—and would remain—in the doldrums until auto production and construction show improvement, but he was not optimistic. Several directors emphasized that the demand for coal is the greatest since World War II; stockpiles are low and there is difficulty in receiving supplies. (This implies continued upward pressure on coal prices, which have risen considerably during the past year; also "brownouts"are likely this summer.) One director, the dean of a graduate school, reported that this year's graduates are harder to place. The market for Ph.Ds, especially mathematicians and statisticians, is suffering, reflecting the cutback in Government grants and other financial support for education. Directors from large banks said they are struggling to maintain their deposits, while directors from country banks were experiencing rising time deposits.
Some recent conversations of this Bank's officers within the District in recent days indicate that businessmen expect corporate profits to be off sharply in the second quarter because of the trucking strikes and the slack in business. Some of the businessmen contacted expect a minor recovery in profits in the third quarter, but do not look for any major improvement before the final quarter of 1970.