February 9, 1972
Leading businessmen in the Eighth District continue to view business prospects for the months ahead with optimism. They report that activity is now expanding on a broad front. Construction on a seasonally adjusted basis and sales of building supplies and home furnishings continue the uptrends established last year. Factory output is approaching capacity levels for some industries. The hotel, restaurant, and airlines businesses are rising. Most managements, however, continue to hold the line on number of employees and plant capacity. They report that new investments are largely on labor-saving machinery and equipment. Savings are plentiful at current interest rates, and some reductions in mortgage rates are expected by early spring. Counter to the general trend was the relatively low volume of department store sales in January.
Construction activity continues at very promising levels, and the outlook is for a good year, especially for residential construction. Some builders who dropped out of the business in 1970 are now coming back into production. Along with the rise in building has been a pickup in sales of building materials, home furnishings, appliances, and all types of controls for appliances, heating, and air conditioning equipment.
Manufacturing firms have taken up much of their slack in operating capacity. One firm in the paperboard and packaging industry was reported to be operating at 95 percent capacity. Another in the hydro-air-engineering business was reported to be operating at capacity. Others indicated that much of the slack had been taken up and that any further gains in output would require additional expenditure on more efficient equipment or new plant capacity.
Despite the higher operating to capacity ratios in manufacturing, sluggish capital goods expenditures are reported. One businessman reported that profit margins are still insufficient to provide an incentive for major capital expenditures.
Employment is likewise being held at a minimum in the manufacturing sector. Of those interviewed, few reported any increase in their labor force. No additional layoffs are in prospect, but there is apparently greater than normal substitution of labor-saving devices for manpower as the economic upswing gathers momentum. Some reporters indicate that manpower will be added only when large backlogs of orders develop.
The extent of the recovery is indicated by the pickup in the service industries such as the restaurant, hotel, motel, and airlines business. While slack in these areas is being removed rapidly, they are not ready to place orders for additional equipment or facilities. This hesitancy may be critical in the case of new aircraft where orders must be placed two years ahead of delivery.
On the financial front, savings continue at a high level. Rates paid savers are generally unchanged but are a little lower at a few institutions. Downward pressure is beginning to develop in mortgage rates. To date, however, mortgage rates have remained sticky, and few reductions have been announced.
The agricultural industry is quite optimistic. Cotton supplies are short and prices relatively high. Soybean demand is good. Livestock prices have risen in recent months providing great incentive for feeding more grain which is now at a very low price relative to livestock product prices.