April 6, 1971
A survey of Head Office and Branch Directors, and other area businessmen, suggests that economic conditions in the Tenth Federal Reserve District are improving somewhat. Yet there is recognition that any further unfavorable movements in the Nation's economy might cause a resumption in the economic problems of the District states. Business people in some District states feel that the economic slump reported for the rest of the Nation has not been as severe within their own areas. At the same time, one Director, who reports his state less hard hit by the recent economic slump than the Nation as a whole, feels that a continual bombardment of the local area with a national psychology of recession has made workers and consumers within the state more worried and cautious than they otherwise would be, and than may be warranted by the local economic situation.
The northern states of the District have continued to feel adverse weather conditions which have been reflected in slower improvement in business conditions than would normally be true for this season of the year. In general, the employment outlook seems to be one of some moderate growth in employment but not fast enough to wholly offset expected labor force increases. Thus near-term improvements in the overall unemployment rate within the District are expected to be modest, if apparent at all. District firms are trying to do a better job with fewer people on their payrolls and, at this point, seem to be using attrition rather than layoffs to keep the size of their work forces within bounds.
Construction activity continues to be favorable but remains variable within the District. Residential construction is strong in Colorado, for example, but is reported by some Directors to be currently less strong in metropolitan areas of Oklahoma. A pickup in home-building in the Kansas City metropolitan area seems to be definitely under way since settlement of last year's construction strike, with builders starting to build speculatively again. A spokesman for the local homebuilders association suggests that the national figure of two million housing starts for the year seems perfectly possible, even likely, if the Kansas City area's present experience and expected performance is any indication. The housing mix in the Kansas City area seems to be distributed between single-and multiple-family dwellings about as it has been in the recent past. There also seems to be evidence of a tendency toward lower priced, smaller, new single-family houses with fewer frills, among new construction in the Kansas City area.
Two Directors, themselves engaged in the construction industry, commented about labor market and labor relations conditions in that industry within the District. One Director reports that, with this year's construction activity in his area down from last year's better-than-average level, union employment in the area is down to its lowest level in years. This is already apparently making union labor somewhat less militant than before, in the sense that they are showing a willingness to work with nonunion workers on a job and do not press for union labor only. This should, in his opinion, keep costs of construction from rising as much as they might otherwise. He also feels that the President's action concerning the Davis-Bacon Act will have a restraining influence on construction cost increases, especially for construction jobs in smaller towns surrounding a major urban area. The second Director referred to above, who is from another state in the District, also sees some signs of a tempering of union wage demands in the construction industry. Some crafts in Oklahoma City, according to this Director, have recently settled for nominal increases compared with those of the recent past. These types of settlements have resulted because of an apparent feeling by the unions that they have been pricing their workers out of jobs. He feels that other crafts will not even aim so high as the settlement that has been recently completed. He sees no direct effects in this situation of the Davis-Bacon action but suggests that it is more likely to result from such things as fear of direct controls, the possible loss of jobs, and other factors.
Bank loan demand, which was reported as weak in February, appears to have firmed up recently according to District bankers. With building activity picking up in the District, construction loans are showing considerable strength. Consumer installment loans also are reported to be showing some improvement. A mixed picture, however, is presented by business loans. Loan demand by some of the large national accounts continues to be weak. On the other hand, loan demand by locally based firms is said to be steady to moderately strong. Supporting evidence that overall loan demand in the District may be picking up somewhat is that a number of bankers report a marked increase in overline loan demands coming from their country correspondents.
Banks continue to experience strong deposit inflows in demand and time accounts considering seasonal factors. Rates paid by District banks on large CD's have declined in line with the New York market, while rates paid on consumer CD's and passbook savings have generally remained unchanged during the past month. In many instances, however, banks indicate that they are considering the possibility of lowering their time and savings rates. One bank reported that on its consumer CD's it was now computing interest on a quarterly basis instead of on a daily basis. Nonetheless, the prevailing attitude toward further reductions in time and savings rates is one of caution. Underlying this cautious attitude is the reluctance of bankers to discourage deposit inflows because they generally expect bank loan demand to improve gradually over the coming months.