April 12, 1972
Economic conditions in the District continue to show signs of improvement. Area manufacturers report further gains in key areas during March. The steel industry is returning to normal operating conditions. Residential construction contracts have declined moderately in recent months, however, from their very high level of last November-December. One director reported that a large number of manufacturers and wholesalers of consumer products with whom he has maintained steady contact for several years are quite optimistic about the prospects for consumer spending and that his own business continues to operate at maximum capacity. Business loan demand at the District's largest banks has improved during the past month.
The District's insured unemployment rate has held during the past two months, after having declined during the previous four months. Nonfarm payroll employment has yet to register a strong recovery; manufacturing employment, however, is creeping up. Preliminary results of our monthly survey of manufacturers indicate that further strong increases in new orders, shipments, and backlogs occurred in March. The upward momentum of business is expected to continue in April.
Steel industry economists say their firms experienced a high level of orders in March. Shipments once again are in line with consumption, but they are just beginning to match output, as producing mills have been building inventories. A major firm reports that new orders in March were the best in over a year, with the pickup in demand coming "across-the-board." Another large steel producer said that in recent weeks orders have leveled off on a high plateau. A third steel company also reports that orders have been on a plateau, and that the demand for heavy construction steel is not showing the usual seasonal strength; steel sheet mill employment, however, has returned to the prenegotiation level of last year.
An economist from a large machine tool company reports that machine tool business is improving gradually, although orders remain well below their peak. Small cutting tool orders have been rising strongly since January 1, but aircraft and defense business continues to be weak. Machine tool orders usually lag about nine to twelve months behind orders for cutting tools, according to this economist. The firm is not planning to increase its labor force until their workweek rises to 40 hours. They have built some inventories of cutting tools in anticipation of rising demand, and they expect to work those stocks down before increasing output and employment.
One director, who just returned from a regional convention of hardware wholesalers and manufacturers, reported widespread optimism about current and anticipated developments in consumer spending. The nearly uniform theme of almost all of the participants was that orders and sales are far exceeding expectations. This director has maintained close contacts with this large group of manufacturers and wholesalers for several years, in both good times and bad. Reflecting the overall situation, his own firm is operating at maximum capacity and experiencing a high level of new orders for and sales of a wide range of products for the home and for the hotel and motel industries.
Demand for commercial and industrial loans at the four largest District banks has improved somewhat over the past month or two. One bank reports a strong increase in such lending; another has experienced a modest increase; a third has had an increase in commitments and inquiries; the fourth reports that loans have stopped declining. All four banks expect further improvement in loan demand during the second quarter, as inventory building and capital spending pick up.