November 10, 1971
The economic picture in the Seventh District continues to be characterized by strength in consumer durable goods and in residential construction; contrasted by weakness in producer goods, nonresidential construction, and inventory investment. Uncertainty over Phase II may be dampening and delaying a restoration of business confidence, and, therefore, of expansionary business policies. District labor markets are soft and, overall, do not appear to be improving. Credit is readily available in all categories, but, except for consumer auto loans, demand for credit is not vigorous, and, in the case of residential mortgages, has weakened recently.
Manufacturers of appliances, color television sets, and furniture have increased output in response to larger retail sales. In part, these developments reflect the rise in newly completed residences, and the continued high level of output of mobile homes, which are shipped furnished. But retailers, generally, express optimism on prospects for sales in the oncoming Christmas season. Auto output schedules are being raised modestly, indicating that producers do not view the surge of auto sales merely as a temporary phenomenon associated with the price freeze and the import surcharge.
Although businessmen typically offer public endorsements for the optimistic general forecasts made by professional forecasters, there is widespread skepticism. Current trends in investment policy—both for inventories and for fixed capital—and in hirings and other decisions requiring cash outlays, suggest lack of confidence in the general forecasts. (This may, of course, make the upsurge all the more vigorous once momentum is gained.)
Uncertainty over Phase II will not be resolved simply by promulgation of broad guidelines. Questions relate to the relationship of price increases and wage increases which, in large degree, will determine profits; to the methods of enforcement and the machinery for adjudication of disputes. The poor performance of the stock market is cited as evidence of this uneasiness. In addition, some influential bankers and businessmen are listening to, and repeating, forecasts of a general decline in activity offered by consultants and commentators.
Part of the current uncertainty could be relieved by favorable action by Congress on pending NEP legislation. But the effect of the tax credit and depreciation reform is emphasized by sellers rather than buyers of equipment.
Steel orders are said to be slow, unsteady, and disappointing, but, nevertheless, basically on the uptrend. Total orders for producer goods (finished goods and components) are, at best, holding steady. Sales of trucks, in contrast, have been excellent, reflecting some of the same factors encouraging auto sales. Producers of both farm and construction machinery report a sharp decline in sales abroad in recent months—a trend that predated August 15. (A large part of these sales are from European factories.) Softness in markets for producer equipment is cited as evidence that prices would not have been raised even if it were not for the freeze. From the buying side, planned investments of many manufacturing firms are well below peaks of past years. Work in hand by plant design firms is at a very low ebb. Utilities are moving ahead with expansion programs that are far from complete.
Reports from real estate brokers, mortgage lenders, and title insurance firms indicate a more-than-seasonal slowing in demand for residential mortgage loans, starting in late September. Sales of housing units, especially existing units, have weakened, and some builders have reduced plans for starts in 1972. Credit is said to be readily available at stable rates, so the situation reflects some easing in demand for housing. Increased vacancies had been noted earlier in luxury apartments, but the recent development includes all types of housing.
In the farm sector, income of livestock feeders is up because of higher prices for animals coupled with reduced feed costs. But crop income is down sharply because of plummeting corn prices. Harvesting is well-advanced in most areas, and crops are excellent. Meat packers find the freeze burdensome because of varying seasonals and other complications associated with joint products. The ceiling price on hides is causing shortages because of increased foreign demand.