Beige Book Report: Philadelphia
May 20, 1970
The business slowdown in the regional economy is now in its seventh month, according to a recent poll of business opinion. Results from the May business outlook survey show that most manufacturers canvassed in the Third Federal Reserve District are experiencing either no change or actual declines in sales and new orders. Moreover, sales for April did not live up to expectations, indicating the current slump is somewhat more pronounced than anticipated earlier. However, area executives polled see no further deterioration of business activity in the immediate months ahead.
In addition, optimism remains high for regional activity over the longer term. Since January, a majority of manufacturers polled have held rising expectations for the second half of 1970. At latest count, more than two out of three area industrialists see a pickup in the economy during the fall and winter of 1970.
Underlying this bullish outlook is an expected jump in both new orders and sales by yearend. Despite this anticipated acceleration in business activity, a majority of area manufacturers do not expect to add to their payrolls over the next six months. In addition, only one in four plans an increase in capital expenditures during the next half year.
The outlook for prices remains inflationary. Better than three out of five respondents, unchanged from .a year ago, expect the upward trend for prices to continue for the balance of the year.
The expectations of area economists for the second half of 1970 parallel those of manufacturing executives. The consensus view of business and bank economists in the Third District, according to a recent poll, is that the current downturn in business activity is bottoming out and that by fall the economy will be expanding once more. Prices, say regional economists, will continue their upward climb, but at a modestly reduced rate as the year progresses.
Comments on the current scene by members of the board of directors are varied. Two members, a banker and a utilities executive, indicate that sentiment among their associates has become rather gloomy in recent weeks. The gloom stems from the view that the current dip in the economy will develop into an all-out recession. Another cause of this gloom is the feeling that inflation cannot be stopped without a serious recession.
Two industrialists on the board, however, do not share this pessimistic sentiment. One indicated that he saw some further slowing in the pace of business activity, but believed that a recession would be avoided largely because of a pickup in consumer spending. The other industrialist expected no further declines in the volume of business. He indicated, though, that he was less certain about the economy and more confused now than at anytime in his experience. Further, this industrialist is skeptical about the ability of current policy to make much headway against inflation.
All board members expressed concern over declines in the stock market. Some pointed to the gloomy psychology it is creating; others are concerned by the possibility of financial failures; still others are concerned that a market decline of current magnitudes might further undermine consumer spending. In a related point, one board member expressed serious concern over the taut liquidity positions of many corporations.
Basically, the business opinion in the Third District reflects the view that the economy has slowed more than expected several months back, and at best only modest reductions in the rate of inflation can be expected by the end of 1970. Also, there is much concern about developments in the financial sector.