June 23, 1971
The pace of the recovery in the district appears to have moderated recently, partly reflecting developments in the steel industry. Manufacturing activity is showing signs of moderating, but residential construction continues to expand more vigorously in the district than in the nation. New car sales have rebounded at about the same pace as in the nation, but gains in overall retail sales have not measured up to the national performance. Our directors remain pessimistic about prospects for curbing wage-push inflation.
Among the more significant recent developments in the district, the insured unemployment rate, which had been relatively steady from late December through April, began to rise sharply in May and was still rising as of early June. Steel mills are already beginning to lay off workers, and unemployment is rising noticeably in steel- producing areas, such as Pittsburgh, Wheeling, Youngstown, and Canton.
Economists from three major steel companies in the district agreed that July would be a very poor month for their firms, even though it is the last month prior to a labor contract expiration. New orders have dropped in recent weeks, shipments will peak in June, and raw steel production is being sharply reduced. The economists attribute at least part of the weakness in their industry to the fact that customers placed orders for delivery before price increases became effective on certain products (some in Mid-June and others on July 1).
Moderating tendencies in the district's manufacturing sector are also evident in the behavior of our indexes of manufacturing output, which have been tapering off in some metropolitan areas in recent months or have actually turned down in other areas. Our survey of manufacturers indicates that new orders and shipments have been increasing at decreasing rates in recent months. Reporting firms expect further modest gains in new orders and shipments during June, along with continued reductions in backlogs and inventories. The latest survey also shows no easing in the rate of increase in prices paid; in fact, the majority of the respondents expect the rate of inflation to accelerate somewhat in June.
Inflationary expectations remain a matter of serious concern to some of our directors, especially in view of what they consider to be labor's "exorbitant" wage increases. One director noted "no industry wants to be the first to suffer a long strike in order to break the back of labor's wage demands."