August 9, 1972
Overall, district banks report a quickening economic pace and an increasing degree of optimism about the business expansion. Industrial activity is continuing up on a wide front. However, little or no change in unemployment is reported by most districts. Retail sales are up substantially, with automobile sales particularly brisk. Construction continues at a high level with housing starts strong in many districts. Most districts are experiencing slow or negligible increases in inventories. Commercial banks are experiencing strong loan demand. In the coming months interest rates are generally expected to rise, with short-term rates leading longer rates upward. Prices are continuing up in most areas.
On the production front, order backlogs, new orders, and shipments are generally up. Atlanta, St. Louis, and Dallas report strong increases while New York, Philadelphia, Chicago, and Kansas City are experiencing significant but less noteworthy rises. Richmond reports a slight decline in the backlog of orders for some firms in that district but shipments are at a constant rate.
In general, the employment picture appears to be improving only slightly at best. In Dallas the unemployment rate recently fell as low as 4.3 per cent. And, Chicago and St. Louis report modest improvements too. Most districts, however, report no change in their job markets. Serious pockets of joblessness are reported in parts of the San Francisco and Richmond Districts.
Most districts report fair to strong increases in retail sales. Auto sales are mentioned as a leading gainer in the reports from Richmond, Chicago, Dallas, and San Francisco. Chicago commented that some retail trade analysts are becoming disillusioned with the surveys of consumer intentions to which they subscribe; at least two of these surveys have issued forecasts of lackluster consumer spending in recent months.
In most districts the demand for loans is strong. Boston reports its loan demand is "very strong" in the real estate and consumer areas. Business loans "grew substantially" at Cleveland. "Loan commitments are heavy" in Chicago. At Kansas City local businesses are the leading borrowers. All loan categories are up sharply in Dallas with business loans up the most. Deposits are increasing in St. Louis, Kansas City, and San Francisco. About the only questions raised concerning interest rates are how much interest rates will rise, and exactly when the rise will start.
The various districts are having a mixed experience with respect to the business investment sector. No areas are reporting general increases. Cleveland and New York referred to faster inventory accumulation. But, most districts discuss cautious inventory policies as reasons for lack of investment in this area. Capital spending for machine tools was up "dramatically" in Chicago. But no broadbased upward trend in plant and equipment outlay is reported.
Most of the reports indicate that construction activity appears to have leveled off at the high plateau attained in late 1971. Total construction is being sustained by strong residential housing demand, while non-residential building is performing less impressively in several Districts.
New York's Directors expressed concern over possible increasing rates of inflation, and one of Boston's academic consultants voiced similar views. But, most districts had little or no comment about expected changes in the general price level. In the agricultural sector, Philadelphia finds that some crop prices are rising. Richmond reports tobacco prices are at an all time high. Increasing prices for corn, soybeans, wheat, cattle, potatoes, and some fruits were mentioned in the reports issued by Chicago, St. Louis, Kansas City, Dallas, and San Francisco.
Farmers are enjoying increased incomes in the Richmond, Chicago, St. Louis, Minneapolis, Kansas City, and Dallas Districts. Although the costs of farming are higher than last year, farm receipts are expected to be up even more because of higher commodity prices and good harvests. In spite of higher farm incomes, Minneapolis furnished some data suggesting that farm spending was decreasing. Bad weather hurt fruit growers and canners in Utah and many farmers around the Harrisburg, Pennsylvania area. Some bankruptcies are likely to result from these unfortunate local weather conditions.