July 15, 1970
This report is based on comments of our Board of Directors as well as results of a poll of large manufacturers in the Third District. The major findings are: (1) the downturn in the economy is bottoming out, although no pick up in business activity is expected until late in 1970; (2) price shading is only "spotty" and not widespread; (3) fears of a financial panic have abated, but could be revived quickly.
There is widespread sentiment that the worst of the downturn for production and sales is over. But there has also been a general reappraisal of when the economy will begin to trend upward again. Six months ago, the prevailing view was for a mid-year recovery. Now the dominant opinion is for a flat economy through the third quarter with only modest expansion during the fourth.
In part, expectations of a delayed recovery are based on the continuing apprehensiveness of consumers. Bankers contacted, for example, point to recent savings trends. Quarterly withdrawals of savings which usually follow interest postings did not occur in early July. In fact, for several months, the volume of individual savings has increased substantially. Further, there has been a definite move toward liquid savings instruments, for example, away from CD's to regular savings accounts. People are just cautious and want to have ready access to their savings, several directors concluded.
As for unemployment, the prevailing view is that the worst is not behind us. This appraisal is supported by reports from large manufacturers in the Third District. While most manufacturers anticipate stepped up levels of production in the coming months, they do not expect a proportionate increase in their payrolls.
Price shading appears to be quite limited. Two directors say they know that discounting is occurring in some sectors of the textile industry. Another director indicates there is below-list-price selling in the paper and chemical industries. Still another director, though, who is knowledgeable about chemical markets, says he is unaware that price shading is taking place. The remainder of the directors can point only to general rumors of discounting, but know of no concrete examples.
There is an across the board feeling among the directors that the
economy in recent weeks has moved back from the brink of a liquidity
crisis. At the same time, however, no one believes that we're out of
the woods yet. One banker, for example, reports an increase in
requests to alter loan repayment schedules for firms caught in a
cash squeeze. Another director believes there is still much
confidence-building to be done before we have completely weathered
the storm.