October 13, 1971
In the view of our directors, the recent changes in economic policy have had a favorable impact on creating a more optimistic outlook but without yet producing a major upswing in business activity. Consumer spending is continuing to rise, with automobile sales registering a generally satisfactory increase. Residential housing and agriculture are providing other sources of strength. The West Coast dock strike had been causing serious problems for many producers, but with the imposition of a Taft-Hartley injunction, this problem has been removed for the time being.
Consumers are maintaining their spending at rates somewhat above
last year. There are some reports of more numerous purchases of
large-ticket items such as television sets and furniture. Some of
this increased spending is ascribed to anticipation of still higher
prices after the wage-price freeze ends and some to demand
associated with purchases of new homes. The large chain stores seem
to have had
above-average sales in September. Automobile sales also
have increased. Sales of 1971 automobiles are generally good, and
the reception of 1972 models is described as favorable.
Nevertheless, there is variation among dealers so that overall they
expect a moderate, rather than strong, increase in sales.
The dock strike had been a source of difficulty for many firms, and its cessation under a Taft-Hartley injunction is a favorable factor. However, agricultural producers in some areas fear that they may have suffered a permanent loss of their foreign markets. For most other firms, the strike represented a temporary, though serious, dislocation.
With the exception of those producers whose disposition of crops was affected by the dock strike, there are good prospects for District agriculture. The wheat crop in the Pacific Northwest is described as considerably ahead of last year, and the Idaho potato crop is expected to have an above-average yield. Cattle prices are also favorable. The Alaska fisheries have had a satisfactory salmon catch, and the shrimp harvest was at a record level.
Residential construction is maintaining a strong pace in most parts of the District, and this activity is helping the timber industry in Oregon and Washington. The only sign of weakness is in construction of multi-family units, and several directors report concern about overbuilding and high vacancy rates for apartments in southern California and Arizona.
Despite these elements of strength, unemployment remains high in many areas and businessmen still seem to be cautious in their plans. There is no sign of a marked increase in business investment or in business inventories.
In line with this general picture, banks report a slight weakening in business loan demand. The banks are gaining deposits and looking to other uses for their funds. Several bankers reported a policy shift in the direction of emphasizing more consumer lending and automobile financing. At some other banks, consumer borrowing is increasing without special encouragement. One bank's credit-card outstandings in September were 28 percent above the previous year's level, and most of this increase is accounted for by larger balances in existing accounts rather than the addition of new accounts. With regard to interest rates, there has been a weakening since August in the upward pressures on rates and the current tendency is toward lower rates, but there have been no major moves in this direction as yet.