April 6, 1971
It is difficult to assess the underlying economic trends in the fourth district at the present time. Current statistics are distorted by the effects of strike-and price-hedge buying in the steel industry and the rebound in motor vehicles and supplying industries. After allowing for the steel and auto situations, there is little evidence pointing to a strong recovery in economic activity in the area, especially in the capital goods industries. The reports of our Directors reflect the sluggish pace of domestic economic conditions, while business activities of several Directors' firms in foreign markets continue to expand.
The district index of manufacturing output (based on electric power consumption) reached what may have been a "cyclical low point" in November 1970 and turned up in December; the index has continued to rise in January and February. Practically all of the February gain stemmed from two industries: primary metals and transportation equipment. The results of our monthly survey of manufacturers follow a parallel path: the recent "low point" occurred in November; an upturn took place in December and continued through February. The magnitude of the rebound in activity from the November low point (as measured by the behavior of the diffusion indexes) reflects the steel and motor vehicle situations to a considerable extent. The most recent survey, conducted during the first two weeks of March, revealed a persistence of cautious hiring policies on the part of most firms, despite expectations that business would continue to improve in March.
Labor market statistics for district areas are at some variance with the apparent improvement in manufacturing during February that was suggested by our index of manufacturing and our survey of manufacturers. Manufacturing employment in the district declined almost as much in February as it increased in January. Furthermore, while the insured unemployment rate leveled off in February, following a sharp decline from November to January, there are indications that unemployment in the district will show a slight increase in March.
Steel industry economists in the district reported that steel consumption appears to be rising more slowly than was generally expected. Machinery accounts are not as active as consumer goods industries in terms of placing new orders for steel. One major steel firm reported that orders peaked in January; another major firm indicated that the peak was reached in February. The industry economists also indicated that recently announced price increases (effective May 1) on a variety of steel products are an important factor in the current increase in steel shipments. Our Directors' comments about business in their particular industries reflected the generally lackluster performance of most sectors of the economy, especially the capital goods sector. One Director, however, noted that public utilities were stepping-up orders for new equipment. Two Directors associated with large office equipment and computer manufacturers reported limited signs of a pickup in certain lines during February. Another Director, representing a medium-sized diversified glass products manufacturer, reported that consumer markets are still sluggish; the strong upturn in residential construction, however, has resulted in a substantial increase in demand for glass products used in new homes. Demand in foreign markets remains brisk, according to several Directors, and, in some instances, is partly offsetting weakness in domestic markets.
Directors from both large and small banks commented on continued, substantial inflows of deposits, suggesting that consumer savings remains high. The banker-directors reported that banks are experiencing a squeeze on profits and, as a result, are cutting rates on savings deposits. (Savings and loans in the district are also posting lower rates on savings accounts.)