June 2, 1971
Leading businessmen in the Eighth Federal Reserve District continue to express optimism about current and future economic conditions. They expect wages to continue upward. Prices are also expected to continue upward and perhaps even accelerate later in the year. Retail sales continue to be strong, while housing as well as other types of construction have tended to level off at a plateau greatly exceeding the levels of a year ago. Employment seems to be stable, although some gains are anticipated if the current rise in business activity continues into the fall. For the most part, manufacturers have been able to expand production by using excess capacity.
Retail sales continue strongly upward. In view of colder-than-average spring weather, which tended to retard the movement of high-priced air conditioning equipment, this trend is an indication to retailers that prospects are very good for the rest of this year. They reported little change in recent months in the number of individuals who were unable to pay bills because of the loss of their jobs. This is in contrast to a large jump in such cases last fall.
Most manufacturers reported increased production and sales in recent months relative to a year ago. Manufacturers of supplies for the housing industry were quite optimistic, although there were scattered reports of inventories being drawn down. Most reported inventories are holding about steady; recent increases in production have been handled by using excess capacity built up in 1970. This is one reason that nonsignificant new plans for capital expenditures were reported, despite the prevailing optimistic expectations. Reports indicated little change in the longer-run investment plans for expansion.
Most firms reported a stable employment situation at this time. No more layoffs are expected, but there were only a few scattered reports of plans for new hirings.
Housing construction has tended to level off recently after big gains in previous months. One of the larger metropolitan areas in the District reported that housing construction is up 55 percent from a year ago. Primarily reflecting the national upturn in housing, demand for FHA and VA mortgages has been strong, and recently mortgage rates on both conventional and FHA-insured loans have risen. Loanable funds, however, generally remain plentiful, especially for those savings and loan associations operating primarily in the St. Louis market. There is some confusion as to the direction of current trends in interest rates paid to savers in St. Louis. Some savings and loan associations operating primarily in the local market have eliminated the 6-percent savings certificates in recent weeks, while others operating in both the local and national markets have eased the minimum deposit terms on high-rate certificates, indicating a desire to increase such accounts.
Underlying the current optimism in the housing industry was an undertone of apprehension that the current uptrend may be similar to some past upswings that led to housing recessions. They indicated a strong preference for a moderate and sustainable rate of expansion in home building.
Some concern was expressed over the problem of the dollar in international markets. One respondent feared that monetary policy makers will be forced to follow restrictive policies in order to correct the situation, thus, cutting off the economic recovery. Most respondents, however, believe that a high rate of inflation will continue.
This is a period of uncertainty for agriculture. Most crops have just been planted, and the outcome depends heavily upon weather conditions and disease. A big concern is the extent to which the southern corn leaf blight will appear again this year, even though resistant strains were planted to help reduce the damage.