Beige Book Report: Dallas
May 20, 1970
Continued inflation is the major concern of Eleventh District board members surveyed at a mid-May meeting in Dallas. A recession is considered possible by a number of the board members, but this prospect is causing less concern than inflation since there is a widespread belief among the directors that a recession would be short and mild. A liquidity crisis is mentioned as a possibility by only one-third of the respondents, and the odds attached to this outcome are relatively low. With this overall economic outlook, the board members expected sales to show no increase or only a small increase in 1970, while profits are expected to decline. One director thought there might be a fall of more than 5 percent in both sales and profits.
Every board member reported that employee wages in their firms were being increased in 1970. This direct experience with higher wage costs may be one reason for the almost unanimous concern with inflation, ahead of other economic problems. The smallest wage increase (4 percent) was cited by an academic leader, while the largest (10 percent) was mentioned by a banker. The nonbanking businessmen mentioned 6 percent most often as the wage adjustment they were making this year.
The respondents were unanimous in their view that the Federal budget would operate with a deficit this year. Apparently, the Administration's forecast of a budget surplus is not accepted within the business and financial community, although a few directors thought the deficit might be small.
Despite some concern about a mild recession, acknowledgment of higher labor costs, and a generally poor outlook for profits this year, there were no reports of employment cutbacks by the bankers and businessmen interviewed and no indication that employment cuts were currently being considered. In fact, plans for very modest expansion of the labor force were noted by a couple of respondents. This reported maintenance of employment levels is consistent with the aggregate data for the Eleventh District, which show total employment still edging upward. The increase in employment, however, has not been sufficient to absorb all of the new labor force entrants in the District states. Thus, there has been an increase in unemployment in the Eleventh District since the end of 1969, and unemployment insurance activity is at a considerably higher level.
The respondents to our survey did note some softening in planned plant and equipment spending. More than half indicated that their January expectations had been revised downward; the estimates of the magnitude of the downward revision were vague but apparently indicated, in most cases, trimming around the edges rather than wholesale slashing. An executive of one major manufacturing concern did indicate that planned plant and equipment spending was undergoing a "substantial" cutback.
The Texas industrial production index edged up in March, but has generally flattened since the beginning of 1970. Increased demand for petroleum and petro-chemical products has helped to strengthen the economy in both Texas and other District states. Oil production in the Eleventh District has remained near record levels throughout the spring, usually a period of seasonal slack.
At the same time, drilling activity has been rebounding from a 27-year low. Construction contract activity in the District showed renewed strength in the first quarter of 1970, compared with either the year-earlier period or the fourth quarter of 1969. Nonbuilding construction contracts were up considerably, buoyed by two very large contracts; nonresidential contracts also showed a sizable increase. A seasonal expansion in construction employment has occurred this spring, although the gain came earlier and was somewhat less than usual.
Department store sales in the Eleventh District through early May were up moderately in dollar value, but less than the amount required to offset inflation. Sales in early May appeared somewhat stronger than has been the case for the year as a whole so far.
Agricultural activities throughout most of the Eleventh District are progressing under generally favorable weather conditions. Cash receipts from farm marketings in the District states were up substantially in the first two months of 1970, compared with year-earlier levels.
Loan demand in the Eleventh District remained sluggish in April, as total loans at weekly reporting commercial banks declined contraseasonally. With both time and savings deposits increasing, District banks added considerably to their holdings of securities, particularly municipals. Time deposits have increased recently due mainly to the sale of large CDs. Some tightening in District bank reserve positions in April is reflected in the increase in weekly average net Federal funds purchased and in discount window borrowings, compared with the March levels.