July 18, 1972
Output and employment in the District are continuing to expand, and unemployment is beginning to decline. New car sales have not risen as much as in the nation, but activity in residential construction has recently accelerated. Steel firms are experiencing a strong and steady order pace; and large banks reported relatively slack loan demand over the June tax date.
Nonfarm payroll employment in the District is continuing to expand at a moderate pace from the trough of last fall, but it is still below the previous peak reached in late 1969. The overall employment performance in the District is influenced by the large proportion of manufacturing employment, which is 11 percent below the previous peak. The District's insured unemployment rate began to decline in June, following a sustained plateau from January through May.
In other areas of activity, new car sales thus far this year in the District have risen only about one-third as much as in the nation. In the Greater Cleveland Area, new car sales for the first half of 1972 were down 4 percent from the year-earlier level. Residential construction contracts in the District were exceptionally strong in April and May, following weakness earlier in the year; and nonresidential construction contracts are beginning to strengthen.
Preliminary results of our latest survey of District manufacturers indicate that the recent strengthening in business activity continued during June. Respondents indicated strong gains in new orders, shipments, and backlogs. Moderate inventory accumulation, which began in May, was sustained last month. Employment and hours also continued to rise in June. The percent of firms paying higher prices rose slightly in June to a level just below that prevailing prior to Phase I. Survey participants expect no slackening in the pace of business or in the rate of inflation during July.
One director, whose firm produces industrial equipment, mentioned that his company has not increased employment even though new orders in the second quarter were up 20 percent from the first quarter (following a "disastrous" second half of 1971). During the slack period, production workers were diverted to maintenance and repair jobs. This director also indicated he felt "apprehensive" about orders for the third quarter and noted that there was no indication of inventory building by his firms' customers.
Economists from three major steel companies in the District report a strong and steady order pace, but they expect the usual seasonal dip in July. Appliance industry demand for steel is still strong although the auto industry's steel orders have been lower than expected, given the production rate. One economist thought the auto companies were importing more steel than usual. The economists reported that they expect a step-up in demand from the auto industry for August delivery, however. Steel demand for oil pipes remains weak, and heavy construction demand is well below the seasonal norm. Customers' stocks of steel are still very low, but as yet there is no rush to rebuild inventories.
On the financial side, the increase in business loan demand at large banks was less than a year ago over the June tax date. Bank contacts suggested that improved corporate liquidity and competition from commercial paper contributed to this pattern. The bank respondents expect loan demand to strengthen as inventory building begins and as the economic expansion proceeds. One country bank director reported that his bank was experiencing strong loan demand and that the bank was buying Federal funds for the first time in years.