July 15, 1970
There has been some dampening of optimism in recent weeks regarding the business outlook in the Eighth District. Although directors of this Bank and its branches and other businessmen in the district generally believe that the period of business slackening is about over, they are increasingly doubtful about the strength of the upswing after the trough has been passed. Some retail firms report a reduction in the planned rate of capital spending, and pessimism with respect to business profits has, if anything, increased following the wage settlement by the Teamsters Union. A few manufacturers now indicate that some worker layoffs are in prospect in an attempt to hold down labor costs. Most of those interviewed expect inflation to continue at or near current rates.
Typical of the comments by businessmen relative to the current economic situation was that economic activity has leveled off or that we have probably bottomed out. Concerning the rest of 1970 and early 1971, however, there was less expectation of a vigorous recovery than was expressed in the prior month. An official of a large manufacturing concern stated, "I am not as certain of the outlook as I was a month ago. I don't see how we can work out of this spiral of inflation." Another reported that sales compared with a year ago were up six percent in the first quarter, down one percent in the second quarter, and are expected to remain about unchanged in the third and fourth quarters.
Prospects for employment are likewise down from expectations of a month earlier. Most firms interviewed indicated that no major layoffs were in prospect. One large shoe manufacturer, however, reported plans for reducing employment sufficiently in the months ahead to offset wage and salary increases—i.e., labor costs are to be held constant. The labor market presently is described as "loose." Although jobs are available, there is a little longer interim between jobs.
Although most manufacturing firms are tenaciously holding on to capital spending plans, and these plans call for future rates of spending in excess of rates during the past year, a few cutbacks are being reported in the retailing business here. Realized sales have in some instances dropped below expectations, and some firms are taking a second look at expansion programs.
Rising cost expectations continue to dampen the profits outlook for business. The Teamsters Union wage settlement, which was higher than anticipated by management generally, was a further depressing influence on profit prospects. The chief executive officer of one firm reported that these rising costs will eventually have a depressing influence on business investments.
The agricultural situation as reported in the Eighth District is generally favorable for crop production. Meat products are expected to be somewhat more plentiful in the second half of the year than in the first half, and prices for meat animals at the farm level may be slightly lower. Thus, the farm sector may have a retarding influence on the rate of increase of consumer prices in the months ahead.
Despite the possibility of relatively stable farm product prices, most persons interviewed expressed pessimism concerning the prospects for any sizable reduction in the rate of inflation in the months ahead. They cannot see any letup in the rate of increase in costs. One manufacturing firm reported that it is planning to sell its product at a stable price by reducing quality a sufficient amount to offset rising costs.
The business officials interviewed see no problem with inventories. Inventory-to-sales ratios are no greater than a year ago, and inventories are at about planned levels in each case reported.