May 5, 1971
Recent evidence indicates there is some expansion in economic activity in the Fourth District, but the underlying trends remain difficult to assess. The recent increase in the pace of business activity in most areas of the District was largely the result of the post-strike auto rebound and the steel inventory buildup, although recovery in residential construction continues to be strong. There are signs that the rebound in manufacturing that began last year, after settlement of the auto strike, may be losing momentum. Demand for labor remains sluggish, and there has been no improvement in unemployment in recent weeks. Our directors report signs of improvement in certain phases of business and, in general, have become cautiously optimistic about the near-term business outlook.
Our latest survey of District manufacturers indicated further improvement in business conditions during March, with strength most pronounced in new orders, shipments, and backlogs. (Indexes of manufacturing output also showed continued gains in most metropolitan areas in March.) Firms in our survey, however, reported no increase in employment in March, and they do not anticipate any pickup in employment during April. Overall anticipations for April suggest some tapering in the rate of gain in other key series such as new orders, shipments, and the workweek.
Nonfarm payroll employment in the District decline in February and March after recording increases for two months. Manufacturing employment declined for the second consecutive month in March, while non-manufacturing employment has been virtually unchanged for the past five months. The insured unemployment rate continued to move horizontally during the first three weeks of April.
Economists in the steel industry informed us that steel shipments are roughly in line with orders at the present time. Orders will fall below shipments from May through July, as the backlog of orders is cleaned up, however. During the second quarter, steel production is expected to make about the same contribution to industrial production as it did in the first quarter, even though the rate of increase is expected to taper after April. The industry economists also reported that manufacturers should have sufficient steel inventories by the end of July to continue production for about two months in the event of a steel strike.
Our directors are somewhat more optimistic about the business outlook than they were a few months ago. On balance, however, their optimism is tempered with caution, because they are not sure how much of the recent improvement in business is "temporary" and how much reflects a sustained improvement in overall economic conditions. Directors whose firms are suppliers to the automotive and residential construction industries report that business activity remains at a high level. One director associated with a large paint, glass, and chemical manufacturing firm reported that sales of fiberglass materials used in tires and general glass products used in residential construction were especially strong in recent weeks. Another director, who is associated with a large tire, chemical, and industrial products firm, noted that he considered the recent acceleration of the firm's sales-especially chemical raw materials and rubber and plastic parts, and accessories-as a sign that other industries are buying in anticipation of increased production and that he is "a little more optimistic". Another director from a sizable building and defense products firm noted that orders for new capital equipment from utilities have been stronger than expected and that the firm now has a sizable backlog of orders in this area. Other capital goods markets (including machine tools) are still soft, according to the comments of other directors.
Directors representing banks in the District mentioned that deposits, principally time deposits, continue to grow at a rapid pace. Loan demand, especially business loan demand, has remained sluggish. One banker-director from a large bank did note some pickup in loan demand in the last three weeks, but this seemed to be an exception to the general trend.