July 21, 1971
The language used in the Reserve Bank reports, to summarize the characterizations of the current economic situation by their various sources of information, falls within a rather narrow range. The present recovery is described as weak (Boston), sluggish (Cleveland), sustainable but sluggish (Philadelphia), and modest (Dallas); there is also an expression of renewed doubts about its strength (New York). Economic activity is seen as continuing a gradual improvement (Richmond), expanding at a gradual rate (San Francisco), showing moderate improvement (Kansas City), continuing moderately upward (St. Louis), improving, with the outlook modestly optimistic (Atlanta), giving rise to expectations of a moderate pickup (Dallas), and leading to the anticipation of marked gains by the year's end (Chicago).
The major sources of such strength as is observed in the economy continue to be construction, especially residential construction, and, to a somewhat lesser extent, consumer spending. This statement appears to be true for nearly all Districts, although there are some differences of degree. Nearly all Banks emphasized the importance of retail sales or consumer spending in supporting the observed levels of economic activity in their Districts. However, the relative weakness of automobile sales was mentioned by three Banks-Boston, Richmond, and San Francisco-while Philadelphia, Cleveland, and St. Louis appeared relatively less bullish about retail sales and consumer spending. The tourist trade was reported to be booming in New England, strong in Florida, and off somewhat in New Jersey.
Most of the Reserve Banks continue to mention the importance of strong residential construction activity, with Atlanta describing construction as the "leading sector" in that District's improving economic situation. Richmond notes that firms producing output related to housing and construction are doing well, and San Francisco reports production and prices up in the timber and lumber industries as a result of rising construction volume. Possible clouds on the horizon of continued construction growth are the mention of higher mortgage interest rates by several Banks, some concern over possible overbuilding of multiple-dwelling units in southern California, and a report of some softening in occupancy rates in office space and apartments in the Chicago area.
Among those Banks referring to financial matters, there was fairly general agreement on the strength of consumer installment loans and real estate loans, but more limited reference to, and less agreement on, business loan demand. Richmond referred to strong demand for loans of all kinds, including business loans, while Boston described business loan demand as sluggish. San Francisco sees it as steady overall; Philadelphia, weak; and St. Louis, rising. Although lending volume has not yet strengthened in Chicago, the large banks there report having perceived the early signs of a pickup in business loan demand.
Several Banks-St. Louis, Chicago, and Cleveland-reported a slowing in the rate of inflow (and some runoff) of deposits into financial institutions. Deposit inflows continue strong in the Tenth District and in the Ninth District, outside Minneapolis-St. Paul.
Not all Banks commented on the employment situation in their Districts, although several did. Unemployment remains high in the Far West, with some further aerospace layoffs to come, but is described as stabilized in the Cleveland District. Steel industry production cutbacks and layoffs are posing special problems in the Chicago and Cleveland Districts, as are layoffs in automobile and ordnance plants in the Kansas City and Atlanta Districts.
There was some expression of feeling that the potential steel strike would be relatively short, if it occurred at all. Two longshoremen's strikes-one now underway on the West Coast, the other a possibility to begin on October 1 along the Gulf Coast—are both feared to be lengthy and serious in their adverse effects.
The demand for short-term farm loans has declined in the Ninth District as farm income flows have improved. Improved farm income is also expected in the Tenth District—drought areas aside—despite anticipated declines in farm prices. But the situation of agriculture in the Eleventh District, where the drought is centered, remains uncertain to critical over wide areas. Increased corn acreage in the Seventh District, along with the planting of some blight-resistant seed, is expected to produce a sizable corn crop and substantially lower prices for it.