June 23, 1971
Reports in this Red Book generally confirm the slightly more optimistic tone of the two previous issues. Most districts report moderate improvement both in retail sales and in manufacturers' shipments and orders. Residential construction is very strong almost everywhere. Defense cutbacks continue. Demand for business equipment remains weak. Unemployment remains high with no present prospects for improvement. Employment generally is steady to slightly higher. Although a few scattered price declines were noted, one of the clearest impressions through the district reports is a strengthening of the inflationary psychology—in large part because of generous wage settlements. Authorized and wildcat strikes continue to hamper activity.
In the financial sector, a pickup in loan demand was noted in a number of districts—especially New York, Chicago, and San Francisco. Consumer and mortgage loan demand also is up. Savings inflows at banks have slowed, but remain at a high level. Interest rates charged by banks have firmed. Home mortgage rates are steady to higher—by a quarter percentage point or more.
Businessmen and bankers now have learned to refer to the rapid growth of the money supply, which they typically deem excessive and inflationary. One "verbose" academician, however, finds the rapid growth of the money supply to be eminently appropriate to conditions. Increases in retail sales were reported in most districts, but higher prices account for most of the gain from last year. Stronger sales of autos, appliances, and home furnishings were noted in a number of districts. A pickup in tourism was observed in the Minneapolis and Atlanta Districts.
The pace of the recovery appears to have moderated in the Cleveland District, but this partly reflects the beginning of the cutback in steel production as inventory buildups are completed. Districts commenting on the potential steel strike that may start August 1, expected a settlement or a relatively short strike.
Among the strongest sectors are residential construction and the industries that supply building materials and components. At the other extreme are defense industries and capital goods (other than utilities)—with machine tools severely depressed. In some districts—Richmond and Atlanta—strength in nonresidential construction was noted.
Business inventories, except for strike hedges, are generally under good control—a point emphasized by New York and St. Louis. Richmond finds some manufacturers' inventories on the high side.
A number of districts commented on farm income prospects. Drought conditions are hurting crops and cattle in the Dallas District, while growing conditions are favorable in the San Francisco and St. Louis Districts. Planted corn acreage is larger this year in the Chicago District, and crop prospects would be favorable, but for the specter of the corn blight. In general, it is expected that higher prices will boost farm cash receipts in the nation in the second half of 1971, but net farm income for the year may be lower than in 1970 because of rising costs.