February 9, 1972
On balance, economic conditions look brighter in the Third District than in recent months. Area manufacturers experienced a pickup in new orders and shipments during January and expect it to continue during the next six months. Capital spending plans are up and liquidity positions seem to be adequate. Bankers reported sluggish loan demand for January but expect some seasonal increases by March. Interest rates are expected to be on the upswing shortly, especially at the short end of the maturity structure. The price picture remains mixed. There is some concern regarding the size of the budget deficit.
District manufacturers polled in the bank's monthly business outlook survey find the economic picture much brighter than in recent months. While November and December saw essentially unchanged conditions, January brought increased activity on many fronts. Over 40 percent of the respondents experienced increases in new orders and shipments during January. While no firms were adding employees in November, over 10 percent did so last month. Over 13 percent of the respondents increased the average employee workweek in January, the largest percent to so indicate in several months. This pickup in activity is expected to continue through February.
Also, the manufacturers remain optimistic about the picture six months out. Approximately three-fourths of the respondents see business activity, both in general and at the firm level, to be increasing in the next half year. This intermediate-term optimism leads nearly 40 percent of the manufacturers to plan increases in capital expenditures.
The bank's annual nationwide survey of corporate treasurers also picked up increased capital spending projections. The firms canvassed (Fortune's 650 nonfinancial firms) plan to increase their plant and equipment by around 10 percent during 1972. Also, the survey found that most financial managers now feel that liquidity has returned to an acceptable level, and they look forward to more than adequate liquidity this year.
Area bankers report that business loan demand has been sluggish. The greatest activity has been in consumer loans with autos giving the most support. The real estate loan picture generally seems weaker. A majority of bankers are hoping for some seasonal help in March.
On the interest rate front, area bankers feel rates are bottoming out and will start an upturn in the near future. Corporate treasurers also see some upward movements for short-term rates as the year progresses. However, the treasurers expect longer-term rates to hold fairly steady. They note that pressure from the corporate sector should be minimal, if internally generated funds live up to current forecasts. Also, they believe inflationary pressures are diminishing, thus helping to reduce the pressure on long-term rates even more.
Members of the bank's board of directors and some area bankers expressed concern over the size of the government deficit. Although they feel the current deficit may be appropriate for a slack economy, they fear that the size of the deficit may not be trimmed back as the economy nears full employment.
The area price picture remains mixed. Although prices paid were generally steady during the past three months for District manufacturers, about one-fourth of those canvassed reported price increases for January. Furthermore, over 35 percent expect price increases for February.