June 14, 1972
Reports from our industrial directors and from business economists in the area indicate current expansion of business activity in the district is gathering momentum. Market demands for both consumer goods and capital goods generally are improving, although the steel industry has yet to register an across-the-board recovery. Both manufacturing and nonmanufacturing employment are rising, but insured unemployment remains on a plateau.
Comments by our industrial directors about improving business conditions in their firms or industries were nearly uniform, reflecting strong consumer spending, a continued high level of auto parts production and a pickup in capital goods and aerospace business. One director noted that although his machine tool business has yet to experience a significant upturn, he remains optimistic (his firm's specialized type of machine tools tends to be among the last to show improvement). Several directors mentioned top management was providing strong pressures to hold down capital spending, and another pointed out that although capital appropriations in his firm will be up substantially this year, capital spending will not exceed last year's level.
Our latest survey of manufacturers supports the view that economic activity continued on a strong upward course during May. In fact, for the first time in many years firms reported the increase in each of our eight survey items was stronger than expected one month ago. (Survey items are new orders, shipments, backlogs, inventories, delivery time, employment, hours and prices.) Another significant fact revealed in the survey results was that there was a net inventory accumulation in May-the first time in many months. Survey participants expect strength in manufacturing activity to be sustained in June and do not anticipate a slowing in the rate of inflation. (Thus far this year, our diffusion index for prices paid has been running slightly below the level that prevailed prior to Phase I.)
Economists in the steel industry report steel orders are increasing, but not uniformly among major customers. The strength is mainly in steel sheets, reflecting rising demand from auto and appliance companies. Steel orders for agricultural machinery and equipment are up sharply, as is demand for wire and wire products. The weakness is mainly in orders for heavy plates and structurals, reflecting lack of strength in high-rise commercial building and industrial building. The steel industry itself has not been using those products to any great extent because its capital spending programs have been reduced this year. The economists mentioned steel users are showing little inclination to build inventories; they seem to be operating on a "hand-to-mouth" basis. Our contacts also indicated there is considerable speculation in the steel industry about reasons for the sharp decline in steel imports during April; some industry analysts apparently are doubtful the recent low level will be maintained.