May 17, 1972
Overall, District reports reveal continued economic expansion in most sectors of the economy, although there are indications of slowing in certain activities. In the forefront, there is continued concern about inflation, the wage-price controls, and the performance of profits. Consumer sentiment and spending appear to be gathering strength in many areas, as is capital spending. Residential construction, however, is showing some signs of weakening. On balance, businessmen are still cautious with regard to inventory investment. Employment is generally rising, unemployment remains a problem. Current and prospective agricultural conditions are excellent in most parts of the nation. The major categories of bank loans are improving.
Boston reports concern among businessmen about inflation and about the ability of the price and pay boards to achieve their goals. Economists attending a regular outlook session at the Cleveland Bank expressed the view that further progress in reducing the rate of inflation will be difficult to achieve, and they think it unlikely that inflation can be held below 3.5 percent for any sustained period over the next year or so. Chicago reports there is widespread irritation among businessmen over recent actions of the price commission. Atlanta, on the other hand, mentions that there have been few reports of inflationary psychology, despite tight labor markets in their area.
Districts "taking the pulse" of the manufacturing sector report further gains in new orders and shipments, coupled with improvement in employment and the workweek. Richmond and Cleveland, however, detect a recent slowdown in steel orders.
Chicago reports the demand for certain types of capital goods is up sharply, primarily for modernization rather than for expansion. Sales of heavy trucks in particular are expected to remain vigorous through mid-1973. Businessmen in St. Louis also say their capital spending is largely for modernization and equipment, noting that profit margins are still too low to provide incentive for major plant expansion. Chicago and Minneapolis both mention extremely good sales of farm machinery and equipment. Respondents in New York and Cleveland raise questions about accepting too readily the strength implied by recent plant and equipment surveys, at least until more evidence is available. San Francisco mentions some caution in business spending plans.
Recent consumer spending patterns are difficult to interpret, in part because the early Easter season may have distorted March and April retail sales data. New York, Minneapolis, and Kansas City report gathering strength in consumer sales. Chicago and Atlanta emphasize strong sales of consumer recreational goods. On the other hand, Cleveland mentions a recent weakening of GAF retail sales; St. Louis reports a leveling in department store sales; Dallas sees some signs of weakening in nonautomotive retail trade; and Richmond says retailers in the Baltimore area were disappointed with sales in April and early May.
Construction generally remains strong in most Districts, especially in Atlanta. Cleveland, however, reports a sharp drop in residential construction. Minneapolis mentions that rising vacancy rates in the Twin Cities are causing banks to be more cautious in their lending policies. San Francisco notes that the high level of apartment and commercial building in Southern California is raising concern over vacancy rates and causing banks to be more cautious in extending credit.
Districts commenting on agricultural conditions (St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco) report highly favorable prospects for crops and livestock. Chicago mentioned that recent wet weather delayed corn planting.
Districts commenting on bank loans report moderate to strong increases in loan demand, except Boston, where business loans are weak.