Beige Book: National Summary
December 8, 1971
The general tenor of the twelve Red Book reports may he summed up as follows: a present business situation that is generating little enthusiasm; an emphasis on uncertainty, perhaps even greater than usual; and a future viewed with some optimism. This generalization alone of course conceals a range of views, especially for the present situation: "sluggish" conditions are reported from Philadelphia and Cleveland, while Boston and Dallas report "good" or improving" conditions, and some Atlanta District businessmen suggest that pessimism has been exaggerated." The consensus is greater, however, on the existence and retarding influence of uncertainty—more than a little of which emerges from the presently unknown influence of Phase II policies and their implementation. Yet, expressions of optimism for the months ahead are found throughout the various Bank reports.
As might be expected in a period of uncertainty and adjustment to new policies, considerable variations of opinion were gathered by the Reserve Banks from respondents to their inquiries. In construction, for example, the Richmond Bank reports some slackening in both residential and nonresidential building; in Chicago, residential vacancy rates are up and new permit issuance has slowed down; and construction activity has tended to level off recently in St. Louis. On the other hand, continued strength in construction is reported from Atlanta, Kansas City, and San Francisco. Several Banks found mortgage money abundant, and rates and terms easing. Saving and loan savings inflows remain strong, and life insurance companies also reportedly have ample funds and are in search of investment opportunities.
Consumer spending, past and expected, also varies considerably from District to District. On balance, there does not seem to be great strength in this sector. Retailers contacted by the New York Bank expect a "good, if not spectacular, holiday season," an attitude shared to a greater or lesser extent by merchants in the Kansas City, Dallas, Minneapolis, and San Francisco districts. Prospects might be thought a little brighter in the Richmond and St. Louis areas; a little dimmer in the Philadelphia area.
Those Banks remarking on inventory investment nearly all cast some doubt on a sudden rise in the rate of inventory accumulation. The New York Bank's respondents see no significant pickup in business inventory spending, a view seconded in the Boston report. In the Dallas District, where sales have been slow recently, retail inventories are described as "excessive," and St. Louis reports that retail inventories there are not growing with sales. In the San Francisco District, inventories are being "deliberately kept low and geared to sales," while Chicago states that "Inventories continue under tight control." In a somewhat different view, the Richmond Bank notes some recent slight increases in manufacturers' inventories, but finds retail inventories declining to more desired levels.
The steel industry's position was commented on specifically in the Chicago and Cleveland reports. Steel orders—"disappointing" overall, but variable from firm to firm and plant to plant—appear to be in for gradual improvement, bringing operations back to "normal" next year for the entire industry. In the meantime, the steel industry is "depressed" as the inventory liquidation is prolonged by increased imports and lower-than-expected current consumption of steel.
While the steel situation has combined with several strikes to bring recent employment declines in the Cleveland District, employment growth is lagging in other Districts, too. Philadelphia reports little new manufacturing employment, a condition expected to extend into the immediate future. Some slight improvement in employment in scattered areas of the New York District is apparently bringing little improvement in overall unemployment. Employers in the Boston District note that, with capacity use rates so low, a sizable rise in demand will be needed before employment is expanded. Yet, improving employment situations are reported in the Atlanta, Dallas, and Richmond districts.
The relatively few comments on business capital spending indicate no current spurt in such activity. However, there has been some increase in purchases of heavy trucks, construction and materials handling equipment, and especially of farm machinery. Both the Minneapolis and Kansas City Banks commented that the investment tax credit might be partly responsible for the latter, along with the harvesting of bumper crops and rising farm income. Agribusiness firms generally are quite optimistic about their future sales prospects.
There was agreement on the Atlantic and Pacific Coasts on the frailty of business loan demand and its relationship to the moderate pace of economic activity. The New York Bank noted that "the demand for business loans does not suggest any quickening in the pace of business activity," and the San Francisco Bank commented as follows: ".... with few exceptions, bankers describe business loan demand as weak, reflecting the moderate pace of business spending." Business loan demand was only "seasonal" in the Philadelphia area; "slow, and weaker than usual" in the Chicago District; and weak at major banks in the Eighth District. In the Kansas City District, however, business loans were stronger in November than in other recent months.
The range of feelings expressed about Phase II include uncertainty, skepticism, and optimism. Several businessmen in the St. Louis District feel that the new programs have hindered business spending so far, and some "see little hope for improvement in prices and profits." Some respondents in the Chicago District feel that sufficient price rises will not be allowed to keep up with cost increases. A major fear, expressed in the New York report and implied in the reports from San Francisco and Chicago, is that controls on prices will be more effective than those on wages, and that a profit squeeze will result, especially for large companies. While not overly optimistic about the program's complete success, there was an attitude that its influence would be favorable—"better than nothing," with "a 50-50 per cent chance of 'crudely and clumsily' moderating the pace of inflation," according to one director of the New York Bank. As the San Francisco Bank aptly concluded: "Overall, Phase II was greeted with less enthusiasm than Phase I, because its duration and character are more difficult to assess."