July 15, 1970
Economic activity in the Fourth District improved in June, partly reflecting the termination of major strikes. The results of our most recent survey of manufacturers indicate that a more than usual seasonal decline in business conditions may develop in July in the district, although the bunching of plant-wide shutdowns for vacations at this time of year makes the data unusually difficult to interpret. Our directors remain generally pessimistic about the near-term economic outlook, although some of the industrialists feel that economic conditions may be a little better now than in previous months. In response to our question about price developments, we received a few reports of price discounting, but the consensus of our directors and a limited sample of business economists in the district was that prices will remain firm because of strong upward wage pressures.
The improvement in economic conditions in the district in June was largely the result of the resumption of production and shipments following work stoppages in the area. The seasonally adjusted rate of insured unemployment for the district declined in June, and at month-end was approximately halfway between the pre-trucking strike level of March and the peak reached in mid-May. Steel ingot production in the district recovered in June after having declined in April and May. The Bank's most recent survey of manufacturers in the district (expressed in the form of diffusion indexes) show rebounds in new orders and shipments during June, and a sharp decline in inventories, Employment stabilized, after declining since last autumn. For the month of July, most survey participants anticipate seasonal declines in all of the areas of activity covered by the survey, except prices. A moderate easing in the rate of increase in prices is generally anticipated in July. The decline in the diffusion index for shipments of manufacturers for July is the largest in the six-year history of the series and is more than seasonal.
The comments of our directors about current economic conditions stressed the continued softness of domestic business, offset in part by strength in overseas business. Overall, the directors were of the opinion that the recovery would be slow and moderate. Several of the directors expressed a strong conviction that wage increases will continue large and profits will remain depressed. With regard to capital spending, one director reported that the petroleum industry is in an over-capacity situation and that his company is making plans to reduce capital spending over the next twelve months. Another director felt that the psychological attitude of management in many firms was extremely pessimistic and, as a result, capital expenditures will be delayed or postponed, especially spending for computers and related information system equipment.
One director mentioned that new orders for commercial electronics products and TV components had been unusually weak for several months, but had made an impressive rebound in late June and early July. He also reported that automobile components were very strong, as the auto firms attempted to build up inventories in anticipation of a prolonged and difficult strike beginning in September. A director from the glass industry said new orders in certain lines had declined recently because customers were attempting to hold down inventories.
With respect to prices, only a few instances of price shading were reported. An economist from the chemical industry said price discounting was no more than usual, up to now, but he felt that discounting would increase later in the year. Economists from the plastics and glass industries said prices for many lines were soft, with selective shading from list prices. For the most part, however, both our directors and business economists in the district emphasized that prices were firm or firming upward from previously discounted levels. One director commented on the recent increases in list prices of tires and said that they hope to make some of the price increases stick. (Discounting from list price at both dealer and retail levels is a normal feature of the tire business.)
In Cleveland, transit workers have been on strike since July 1, and garbage collectors struck a few days later. A significant number of building trades have been on strike since May, and most major construction projects are at a standstill.