May 5, 1971
The overall impression that emerges from the Districts Red Book reports is that the economic outlook has taken distinct, albeit moderate, turn for the better over the past month. Among the most encouraging developments is the evidence emanating from most parts of the country that the long awaited rise in consumer spending may finally be getting underway, even though an underlying note of caution characterizes most discussion of consumer attitudes. Several Districts reports also point to strong residential construction activity. On the other hand, while businessmen may be more optimistic than a month ago, business confidence has not as yet grown to the point where firms are rushing to build up inventories, nor is there much, if any, evidence of an upward revision in planned outlays for plant and equipment. Moreover, apart from a few scattered signs of improvement, the unemployment picture remains rather bleak. Finally, continued concern over inflation was expressed by a number of respondents in several of the Districts.
Turning to consumer spending, all Districts report some improvement over the past month. In most instances, however, the increases in retail sales are characterized as "slight" or "moderate", and the consumer is usually described as still cautious, and cost conscious. The Boston Bank, for example, reports that retail sales in New England seem to have picked up somewhat, but that the consumer has by no means "broken out". Reports on retail trade in the Chicago District were more favorable than earlier in the year, but the improvement is characterized as modest. Similarly, the San Francisco Bank reports that retail sales are rising at a moderate pace but that in general retailers expect no major jump in consumer spending at this time. Some of the reports, however, are more optimistic. The Philadelphia Bank states that retailers report a noticeable pickup in sales, even though consumers remain bargain conscious. The St. Louis Bank reports that retail sales picked up considerably in the week before Easter and have remained at the higher level since then, with clothing and appliances moving well and with a strong demand for automobiles. All respondents in the Minneapolis and New York Districts expressing an opinion on this topic felt that the retail sales picture had improved as compared to earlier in the year, and a special survey of leading department stores in the Atlanta District reveal that sales have been exceeding expectations.
Residential construction also continues to be a bright spot in the economic outlook-indeed perhaps a brighter one than earlier in the year. The Richmond Bank thus reports that the majority of banking respondents throughout the District feel a sustained surge in residential construction, as well as a revival in nonresidential construction, is underway, while Chicago reports that prospects for residential construction appear even stronger than in earlier months. Similarly optimistic assessments appear in several other District reports.
Along with the pick up in retail sales and the sustained strength in the construction industry, there are reports of an increase in manufacturers sales and orders in a number of areas throughout the country. The Philadelphia Bank, for example, reports that a recent poll of area industrialists shows that for April almost four times as many firms registered increases in sales and new orders than showing decreases, while the Cleveland Bank's latest survey of Fourth District manufacturers points to further improvement in March, particularly in new orders, shipments, and backlogs. That Bank's report, however, cautions that some tapering off in the rate of gain may have occurred in April.
A more rapid expansion of industrial production, however, has been inhibited by the fact that business confidence, although stronger than earlier in the year, has not as yet risen to the point where manufacturers and retailers are willing to aggressively build up inventories, but prefer to maintain stocks at current levels. Thus, the San Francisco Bank reports that, apart from stock piling of steel, and some rise in building materials inventories, there is little evidence that businesses are rebuilding inventories. The Richmond Bank reports an actual decline on balance, in both manufacturers and retailers inventories, while the St. Louis Bank reports that retail inventories have not been increased.
Opinions are mixed among the Banks that discuss the unemployment picture in their District. The Kansas City Bank feels that the employment situation is still soft and that only a modest improvement is expected in the coming months. Similarly most respondents in the Dallas Bank District thought that unemployment in that area would not decline much, if at all, over the balance of the year. Unemployment is apparently continuing to rise in the Chicago area, while the Cleveland Bank characterizes the demand for labor as sluggish. On the other hand, signs of some, if only tentative, improvement can be found in the reports of the Philadelphia, Richmond and St. Louis Banks.
Most Districts reported a firming of demand for bank loans, especially consumer and mortgage loans, but in several instances business loans as well. In general, loans continue to be readily available.