June 2, 1971
The moderate improvement in sentiment noted a month ago is still evident. But signs of a vigorous uptrend, except in residential building, remain elusive. Job markets appear to have stabilized, with some scattered rehirings, but students and teachers are swelling the number of job seekers. Prospects are even less favorable than earlier for a significant diminution of upward price pressures. Demand for long-term funds remains strong, but demand for bank loans continues weak, although commitment volume has picked up sharply. There is no indication that the economy will again slide into a slump, but the reversal of the build-up in steel inventories after July and the ending of other temporary stimuli are expected to dampen the business uptrend. Looking ahead to 1972, a broadly based recovery is widely anticipated.
Orders have improved moderately for a variety of consumer goods, capital goods, components, and materials in the past several weeks. In almost all sectors, however, the order lead time remains very short. Nevertheless, stronger demand has encouraged price increases for such items as steel, nonferrous metals, building materials, plastics, and chemicals.
Inventories of most items are said to be well in line with requirements. Exceptions are extra holdings of steel, aluminum, and copper, awaiting strike developments. Many manufacturers have reduced goods-in-process inventories.
The outlook remains bleak for capital equipment generally. Farm equipment sales are reported to have improved recently, but data for first quarter show a large deficit from a year ago. The picture on construction-related equipment is mixed, with greatest strength in exports and mining equipment. The only really vigorous demand is for equipment related to pollution control.
Steel orders have slowed down to a level below shipments. Nevertheless, some transportation problems are beginning to hamper deliveries to steel users. On steel strike possibilities, it is generally recognized that the terms incorporated in the auto, can (and now, aluminum) settlements should set the pattern for agreement. Nevertheless, local problems and militant leaders may force a strike.
Concern about foreign competition continues to rise—in steel, machinery, and consumer goods. Some producers who used to emphasize an all-American product are developing or are seeking foreign sources for components (even including such bulky items as castings).
The current auto sales picture is clouded by effects of sales incentive programs. Inventories are now about right. Total sales of 9.8 million cars (including 1.5 million imports) will require strong demand for 1972 models.
With few exceptions, bankers continue to report demand for business loans as slow and disappointing. But there has been a sharp pickup in demand for firm commitments—paid for by fees or balances. Lines of credit, term loans, and revolving credit are all mentioned. Most of these commitments reflect a desire for insurance against future stringencies, because there is little indication that funds will be required in the near future. With slow business loan demand, banks are showing increased interest in mortgages, consumer credit, and broker loans.
More bankers, especially in Michigan, are investigating the advantages of holding companies and possible acquisitions of "bank-related" enterprises.
Inflows to bank savings accounts are reported to have slackened in recent weeks. CD money is not being sought aggressively. Savings inflows to S&Ls, however, remain very strong.