July 15, 1970
Overall, the views of our directors have not changed much during the past month. Most of them see a slowdown in the pace of economic activity with no sign of any quick upswing, but few report any feeling that the slowdown will worsen. Both prices and costs are expected to show further increases, and price shading is not widespread. The area with the most severe problems in terms of unemployment continues to be the Pacific Northwest, where both the aircraft and lumber industries continue to reduce employment. Directors who are associated with the lumber industry report that companies are curtailing production, with many firms on a four-day week and usually with only one shift. In Oregon, it is reported, the majority of the small mills have been shut down for over two months and many may never reopen. Even some large firms dependent upon public timber are having difficulties, and one director forecast that some large firms would be out of business by spring.
Another area with above-average unemployment is Southern California. The aircraft and defense industries are suffering the most, but their relative impact on that area's economy is smaller than in the Northwest, and total economic activity in Southern California remains strong. A large electronics manufacturer in the San Francisco area has reduced its workweek in response to a fall in orders. It chose this method of reducing output rather than having layoffs and risking losing skilled employees. Declines in manufacturing, mainly machinery and electrical goods, are also reported for Arizona, where total employment declined for the first time since January. Unemployment is higher in Alaska, in part because of a slowdown in the oil field development.
Prices continue to rise, with the notable exception of lumber and plywood prices. Consumer demand remains steady, although where unemployment is high the sustaining effect of unemployment payments may disappear as benefits are used up. Therefore retail sales may fall more in such areas. Another unfavorable aspect noted by one director is the increase in the number of personal bankruptcies.
Businesses continue to face a squeeze on their profits—especially those now experiencing substantial wage demands. Retailers are described in some cases as reluctant to maintain margins by increasing prices. There is continued emphasis on cutting costs. As part of this trend, bankers report reduced demand for loans to support inventories. In some industries, prospective labor problems add to uncertainty.
The oil industry has some difficulties in controlling discounting of gasoline on the retail level, despite withdrawal of temporary dealer allowances. In addition, it has some supply problems caused by the loss of Arabian crude oil supplies due to the shutdown of the Trans-Arabian pipeline and cutbacks in Libyan oil production. There are also uncertainties about the future need for the production of unleaded gasoline.
In agriculture the picture is mixed. Cattle prices continue to hold, but there is weakness in some areas dependent upon fruits and vegetables, such as Washington and Southern California. The decline in citrus production is not expected to be compensated by higher prices. In Washington, packers are operating at below capacity. But a favorable factor is the recent signing of union contracts by grape growers in the Central California Valley. This signing was in response to the success of the grape boycott, and the resulting settlement of this dispute should improve agricultural income.