September 15, 1971
Latest survey data, coupled with informal reports from this Bank's directors, indicate that economic conditions in the Fifth District continue in a moderate uptrend. The manufacturing sector has apparently registered some further improvement over the past four weeks, while retail sales continue to expand at the recent moderate pace. Construction activity remains strong in all District states. Banking respondents report strong demand for consumer loans but no unusual strength in demand for other classes of loans. All of our contacts indicate that confidence among both businessmen and bankers has been sharply improved since announcement of the President's new economic program.
Manufacturers in our latest survey report further increases in new orders and shipments and a small increase in backlogs. A reduction in inventories is also indicated, although many manufacturers continue to view their inventory levels as high relative to sales prospects. Employment is down in some industries, notably steel, electronics, paper, and chemicals, and a number of manufacturers report a small reduction in the length of the workweek. The overwhelming majority of manufacturing respondents believe that current plant and equipment is adequate or more than adequate.
In the trade and services area, respondents report that retail sales continue to rise at about the same pace as in the preceding reporting period. Banking respondents report further gains in automobile sales and sizable increases in consumer loan demand. Trade respondents believe that their inventories, which have risen somewhat over the past four weeks, are high relative to current and prospective sales. No change is indicated in trade and services employment.
Construction spending continues strong in all District states, although the number of respondents reporting increases in residential building is down from the preceding survey. Bankers report some slackening in the demand for mortgage loans but demands for such loans have been unusually heavy in recent months.
The diffusion of responses from bankers suggests little more than seasonal increases in business loan demand. A special telephone survey of senior officers of large District banks turned up no evidence of unusual strength in business loan demand since announcement of the President's new economic program. These bankers indicated, as a matter of fact, that pressure for business loan commitments appears to have abated since the wage-price freeze was instituted.
Cash receipts from farm marketings in the District in the first half of 1971 were 2 percent below the comparable period a year earlier, with reductions in livestock receipts accounting for all the decline. The season's gross returns from flue-cured tobacco marketings through September were up 12 percent, as prices were 4 percent higher and volume of sales were up 7 percent.
Both businessmen and bankers have reacted favorably to the wage-price freeze, although both groups remain concerned about the shape of the program for Phase Two. Our latest survey showed a sizable jump in the number of respondents expecting improvement in general economic conditions in the near future. More than half the banking respondents now fall into this category.