July 15, 1970
Current comment by businessmen and bankers, as reported by the 12 Reserve Banks, continues to emphasize weakness in overall business activity and to focus on such problems as unemployment, rising costs, declining profits, inadequate liquidity, and excessive inventories. In most Districts, however, the general tone of the comment is less pessimistic than a month ago. While some Reserve Banks report a further softening of activity through June and early July, most indicate a growing consensus among businessmen that the worst of the latest decline has passed and that the economy is now bottoming out. Expressions of concern over the state of corporate liquidity continue numerous and apprehensions over the possibility of serious financial disorders persist. But on both counts, fears appear to be distinctly less pronounced than at the time of the last FOMC meeting.
Of the 12 Reserve Banks, Boston characterizes the tenor of business comment in its District as "markedly more optimistic than a month ago" and is joined by Atlanta in emphasizing elements of strength in the local business picture. Cleveland also notes a marked improvement in June, attributed mainly to the termination of strike activity, but indicates a distinctly pessimistic outlook for July and for the near-term future. In the remaining Districts, comment on current conditions is predominantly bearish. St. Louis, which last month characterized current conditions as "good," now reports "some dampening of optimism in recent weeks." Reports from Minneapolis and Dallas also suggest some further softening of activity as compared with a month ago. As for the outlook for the rest of the year, sentiment in most Districts appears to be veering increasingly towards a belief that recovery from the current decline will be gradual and that only a modest business expansion can be expected.
Comments on business spending suggest some further cutbacks or stretch-outs in capital plans of manufacturers and retailers. Specific reference to such cutbacks or stretch-outs is made in the reports from New York, Atlanta, Cleveland, and St. Louis, with Chicago noting declines in the orders of capital goods producers. The St. Louis report, which indicates cutbacks only among retailers, is notable for its contrast with the bullish outlook for capital plans reported by that District in the last Redbook. Boston and Richmond continue to report no substantial evidence of any significant scaling down of capital plans. About half the Districts indicate some degree of inventory excess, with four reporting inventories as higher than desired while others say that businessmen are actively holding the line on inventories. Cleveland's latest survey shows a sizable reduction in stocks in June and San Francisco reports that business demand for inventory loans has fallen off.
Consumer demand is indicated as less than buoyant in a number of Districts, although New York notes that retail buying seems fairly well sustained. San Francisco reports that personal bankruptcies are increasing and that retail sales in the Twelfth District are likely to decline. An apparent increase in the rate of saving by consumers is noted in the Philadelphia District, while Minneapolis and Richmond report some downgrading in the quality of consumer purchases. Other Districts describe the demand for automobiles as concentrated mainly in the less expensive models.
Comment on the employment situation is most bearish in St. Louis, Chicago, and Minneapolis, where major firms are said to have stopped all hiring or to be considering additional layoffs. Philadelphia also expects further increases in unemployment and San Francisco reports the continuation of serious unemployment in the Pacific Northwest, with some increases in layoffs in Southern California and Arizona. But in the Boston, Cleveland, and Richmond Districts the employment situation appears to have stabilized and no significant further cutbacks are expected. Atlanta also reports "no serious deterioration" in prospects for employment.
Some instances of price shading are reported in all Districts except Boston, although some Districts indicate that the practice remains fairly rare. Only Richmond and Dallas report widespread price shading. Most frequently mentioned items on which some shading is noted include industrial goods, such as some chemicals, lumber, steel, and nonferrous metals. Other items cited are synthetic fibers, glass, lubricants, and large capital items. Among consumer goods, automobiles and large appliances are mentioned. Some easing of prices is evident, especially in the New York District, but Chicago reports that some prices are higher and Cleveland says that most prices are "firm or firming upward." San Francisco and St. Louis report that inflationary expectations continue strong among businessmen.
Most District reports mention corporate liquidity as a serious problem, but none describe it as critical. Several reports state that demand for bank loans by business continues strong. In two Districts, some finance companies and industrial firms that have been squeezed out of the commercial paper market are finding accommodation at commercial banks. The squeeze on corporate profits is also listed as a continuing problem in a majority of Districts. Firms reportedly have had little success in containing rising costs, and the expectation of continued wage pressure apparently is widespread among businessmen.