July 18, 1972
Reports from the twelve Districts indicate that economic activity continues to strengthen and the outlook of most businessmen and bankers is optimistic. Consumer spending, especially for tourism, recreational vehicles, and autos, appears to be a major source of strength. Capital spending and plans for future outlays still appear to be gathering momentum, and orders and shipments of heavy capital goods producers are reported to be on the upswing. While construction activity is at a high level, signs of some slowdown in construction are becoming apparent in several Districts. Inventories are still being held closely in check with most manufacturing and trade firms reporting no change or only a modest increase in inventories. In general, agricultural conditions are good to excellent. However, heavy rains in some areas have set back crop conditions. Loan demand is on the increase, but banks apparently have adequate funds to meet the expected near-term loan demand. Interest rates on most loans are reported to be little changed or slightly higher in the last month.
Optimism on the part of businessmen and bankers is evident in most of the District reports this month. Atlanta notes that descriptions of the economy generally run from good to booming. Richmond reports that their directors are optimistic, and Kansas City notes that businessmen seem "unguardedly optimistic" about the economic outlook. And the consensus at Chicago's annual Business Outlook Conference was that the current economic expansion would last at least through the first half of 1973. New York directors were characterized as mixed on the economic outlook but were more optimistic than in the previous month.
Strength in the demand for consumer goods was noted in most regions. Minneapolis reports yearly sales gains of 5 to 10 percent in the Twin Cities area in the second quarter and a strong demand for meat at the retail level. Retail firms in New York were more optimistic this month about consumer confidence and outlays; consumer spending on nondurables appeared to be good in the Boston District. Brisk auto sales were cited by Richmond, Dallas, and San Francisco while Chicago reported an optimistic forecast for autos in both 1972 and 1973 at their Business Outlook Conference. Cleveland, however, reported that car sales in that District had risen less than in the nation. And St. Louis noted a decline in retail sales at major department stores in June, following a strong uptrend earlier in the year. Although the recent heavy rains depressed retail sales in the Philadelphia District, retail executives there are optimistic about sales this fall.
Improved consumer demand is also indicated by increased spending for recreational activities. The Boston, Chicago, and San Francisco Districts all report booming sales of recreational type vehicles. Atlanta reports heavy attendance at Florida's Disney World, with the benefits of this visitor attraction apparently spilling over to other parts of the Southeast. Businesses catering to vacationers in the Kansas City District were doing very well although tourists were reported to be avoiding luxury items.
Plans for increased capital spending were noted by St. Louis and Chicago as a source of further economic strength. And announcements of new plants and plant expansions continue to be numerous in the Atlanta District. However, the percentage of firms reporting increased capital spending plans in Philadelphia's regular survey has stabilized at about 45 percent in the past two months.
The upturn in capital spending this year is beginning to have a noticeable impact on the sales of some heavy goods manufacturers. Chicago cited increased sales of heavy construction equipment and over-the-road trailers while Boston reported an increase in orders for oil field equipment and aircraft parts. Steel companies in the Cleveland District are experiencing a strong and steady order pace with the prospect of some pickup in orders from the auto industry for August deliveries.
Inventory levels are generally unchanged or only increasing moderately. Manufacturing respondents to the monthly Richmond survey reported little change in their inventories and judged their inventory levels to be about right. San Francisco reported no sign of major inventory building at the retail level in that District, and Richmond noticed no change in trade inventories. New York and Boston, however, saw some evidence of moderate inventory building at the retail level. The Minneapolis Bank directors cited high finance costs, better management, and better-than-expected sales as possible reasons why inventory-to-sales ratios were remaining relatively low.
Crop conditions are generally good to excellent in the St. Louis, Chicago, Kansas City, and San Francisco Districts. However, cool weather and excessive rainfall have hurt crops in the Richmond District, and New York and Philadelphia report some crop damage due to flood conditions. Rain also slowed the Kansas wheat harvest, but the 1972 crop may still rank among the largest on record. Prices for both crops and livestock are reported to be favorable for increasing farm income this year, especially in view of generally high levels of production.
While employment gains were reported in some Districts, the uptrend is apparently still rather slow. Some manufacturers in the Richmond and Philadelphia Districts expect to increase their employment and lengthen workweeks. Nonfarm payroll employment is expanding moderately in the Cleveland District, and the insured unemployment rate has turned down. The unemployment rate for the five southwestern states in the Dallas District is at a low 4.4 percent, but employment analysts there are not optimistic about gains in employment during the rest of 1972.
The demand for all types of loans is apparently strong in nearly every District and advancing at a steady pace. Cleveland did note, however, that business loan demand over the June tax date was less than a year ago in their District. The supply of loanable funds at banks is adequate, but in the Chicago District the volume of outstanding CD's has been rising. While interest rates are apparently little changed, St. Louis and San Francisco noted a slight rise in rates.