April 6, 1971
A moderate uptrend of business in the eighth Federal Reserve district continues, according to a number of leading businessmen interviewed. Most manufacturers see signs of business gains as the year progresses. Retail sales continue to be sluggish, although on a seasonally adjusted basis they are somewhat above levels of last autumn. Home building continues to expand. Unemployment remains relatively high, and few firms report net hirings. Layoffs, however, seem to be at an end. Capital spending plans have been scaled down from levels planned a year ago.
Retail sales are somewhat above levels of the autumn months on a seasonally adjusted basis but have failed to maintain the sharp increases achieved just prior to Christmas. The false Christmas signal and the failure of sales to recover as quickly as they did following some previous slowdowns have been disappointing to some retail firms. Nevertheless, retail inventories have been maintained at moderate levels.
Residential housing construction is continuing to improve over the very low levels of last summer. Reporters throughout the district indicate sizable gains in low-cost home construction.
Commercial and industrial construction is still described as "soft." The few new building projects reported are for nonprofit organizations, such as hospitals, schools, and homes for the aged.
Manufacturing firms are generally becoming more optimistic. Orders are reported to be rising, and retrenchment plans for employment and capital investment have been largely completed. In the clothing industry production of knit goods is booming, but limited by a shortage of knitting machines. Demand for synthetic fibers is increasing but remains weak judging by long-run growth trends. Some other lines of manufacturing, such as brewing, feed, and dairy processing, have not experienced a decline in activity during the current slowdown.
The labor picture is little changed from a month ago. Unemployment remains relatively high, and no early improvement is expected. Apparently, most employment increases in recent weeks have been offset by additions to the labor force. Few firms are actively recruiting help. Some firms which have in prior years regularly recruited at college campuses report that no recruiting is being done this year.
Capital investment may have reached a trough. The combination of high interest rates and sharply declining profits last year quickly dampened investment spending plans of a number of larger manufacturing companies in the district. The rising optimism and declining interest rates of recent weeks, however, are reawakening some plans for additional investment. One large manufacturing firm reported that its investment will bottom out in the first half of this year and moderately expand in the second half, largely due to some expectations of profit improvement.
Loan demand in the district continues to be weak, and liquidity of banks is very high. Some firms report that lending rates are even lower than announced levels. To date, no district banks have announced a decline in rates paid on savings or small time deposits, but numerous complaints of a profit squeeze have been heard.