July 21, 1971
The pace of the recovery in the District remains sluggish. Particular areas of strength—as indicated by specific reports received in June—were certain types of office equipment, certain consumer goods and replacement tires. As a general matter, business activity in June was below the previous expectations of most of the major manufacturing firms in the District, and no particular strength is anticipated in July. The employment situation has not improved in recent months, but at least unemployment has stabilized since mid-June, following upward tendencies in May and early June. The steel industry, however, is exerting more of a retarding influence on the District's economy, as evidenced by production cutbacks and spreading layoffs.
Our most recent survey of manufacturers indicates a noticeable slackening in the upward pace of District manufacturing activity during June. There were significant declines in the diffusion indexes for new orders, shipments, and backlogs. Price increases, on the other hand, were more pervasive. The per cent of firms that reported paying higher prices was the largest so far this year. Anticipation's for July include a virtual flattening in new orders and shipments, further reductions in backlogs and inventories, a softening in labor utilization, and no abatement in the recent pace of inflation.
Our latest survey of capital spending plans indicates that major manufacturing firms in the three largest metropolitan areas of the District expect to spend less for new plant and equipment this year than last year, while public utilities plan to exceed last year's capital outlays.
In general, comments from our directors representing industrial concerns confirmed the lack of strength in District business conditions. Two directors associated with office equipment companies, however, mentioned a recent pickup in their sales (considered by one firm to be a good coincident indicator of economic activity). Other directors noted improved consumer business and very strong tire replacement business.
One particular item of interest that provides some additional insight into the District's employment situation came from a director who is president of a large state university. His institution is having the largest summer school enrollment in years, reflecting the fact that students were discouraged in their attempts, or unable, to find work and therefore chose to remain in school.
Our steel industry economists informed us that the steel inventory buildup by the end of July will be about one million tons larger than it was in July 1968 (the month prior to the last labor contract expiration). The inventory buildup during the spring, however, was larger this year than in 1968, chiefly because of recent price increases. On the other hand, steel shipments this month are expected to be roughly two million tons lower than in July 1968. Orders for third quarter delivery are extremely depressed, particularly for August. (During a contract expiration year, steel users ordinarily place some orders on the books to be first in line for delivery following a strike settlement.) One major steel company interprets the sparsity of August orders as a sign that steel consumers are not anticipating a strike. The steel economists noted that a record level of steel imports and rising imports of steel-using products, such as cars and appliances, are dimming prospects for any upturn in orders during the remainder of the year.
Economists from two major banks in Cleveland reported their banks had begun to experience a runoff in deposits. One bank had a "serious" reduction in time and savings deposits recently, while the other bank had a marked slowdown in net savings inflows. One of our banking directors (country bank) also mentioned a slowdown in all types of deposits in recent weeks.