April 6, 1971
While this month's district Redbook reports are conflicting on several points, their general tenor must be judged pessimistic. Nearly half the districts reported increasing signs of recovery, but an equal number characterized business and employment conditions as unchanged or deteriorating from January-February levels. When weighted for firmness of conviction, the April responses emerge as clearly bearish.
On the employment front, the Cleveland, New York and Chicago districts reported that unemployment seems to be rising, while most other districts reported no change or nearly imperceptible improvement. Several districts cited continued layoffs in a wide variety of occupations, and others described continuing efforts at payroll trimming via reduced recruiting activity and inaction in replacing normal losses from attrition. Labor militancy in current and forthcoming contract negotiations was reported to vary widely among districts.
Consumer caution remains readily apparent in all but the Richmond district. Even allowing for the later Easter this year, March retail sales have been disappointing. Consumer cost consciousness remains conspicuous, and no convincing evidence of a recovery in auto demand can be found. Individual district respondents continue to stress awareness of unemployment and layoffs as the major explanatory factor in consumer behavior, suggesting that there is no compelling reason why a consumer resurgence should be imminent.
In the manufacturing sector, several districts reported that 1971 shipments levels in major regional industries are showing some pickup over midwinter lows. In many cases, however, increased shipments are proceeding at the expense of diminished backlogs. Chicago and Boston districts both reported severely depressed conditions in the machine tool industry, with no current prospects for improvement over 1971. No common trend in industrial pricing is identifiable as district Directors report news of increased price shading as well as expected price rises. Five districts report continuing austerity in industrial capital spending plans, although the Atlanta district discerns the early signs of a recovery in this area.
Most districts report a substantial pickup in residential mortgage demand, but only Richmond, San Francisco and St. Louis were able to attribute this to definite strength in residential construction. Increased mortgage demand elsewhere seems heavily based on a flurry of sales of existing structures. New York district respondents are less optimistic about single family residential construction activity now than a month ago.
Loan demand at commercial banks was reported higher in three districts, and unchanged to lower in five others. Deposit inflows are uniformly characterized as heavy relative to loan demand. Six districts now report cuts in passbook savings rates at major commercial banks, and bankers in other districts are considering cuts while watching market developments. Banking Directors in three districts took note of a developing profit squeeze in the commercial banking sector as a result of interest rate developments. Countering this nationwide trend are banks in the Kansas City and St. Louis districts, which have not dropped rates to date.
Banking respondents in the Philadelphia district expect no
substantial declines in long rates over the coming months, citing
continuing corporate funding needs and the addition
of an
"inflationary factor" to projections of borrowing requirements. A
Director of the New York bank, on the other hand, noted that SEC
registrations for corporate bond issues—while still high—are
tapering off and that a lighter calendar can be expected to develop.
Academic respondents in the Boston district concurred with the
latter view, projecting a fall in long-term corporate rates to below
7 percent by summer.