January 10, 1973
The overall impression conveyed by the District Banks' reports is that the economic expansion of 1972 continued undiminished at the turn of the year and was perhaps gathering additional momentum. Retailers generally enjoyed a very good Christmas season, and many were reported to be quite optimistic about sales prospects over the months ahead. Business confidence improved further, as evidenced by increased actual or planned outlays on plant and equipment. Manufacturing activity has quickened, with increases reported in new orders, shipments and backlogs. And while housing construction on balance appears to have peaked out, it remains at very high levels. The unemployment situation improved somewhat further, and there were frequent reports of a growing shortage of skilled and semi-skilled labor. On the dark side, however, concern continued to be voiced over the outlook for further inflation.
One of the brightest spots in the latest District reports was the strength in consumer spending over the Christmas season. Moreover, retail sales were reported as continuing strong during the post-holiday period. To be sure, the phrases used to describe the strength of Christmas sales varied somewhat, from the "continued to expand", "were generally reported good" or "continued strong" (Richmond, Kansas and Dallas, respectively) to "extremely vigorous:; "very strong" and reaching "record levels" (Chicago, Cleveland and San Francisco). It thus appears that nationwide consumer spending was well above that of the 1971 holiday season, frequently surpassing retailers' expectations. An optimistic outlook regarding sales over the months ahead, moreover, was mentioned by a number of districts, including Minneapolis, St. Louis and San Francisco. Boston also reported an unusually high rate of reordering from retail stores for this time of the year.
Another bright spot was the apparent further heightening of businessmen's confidence, as reflected in reports of increases in actual or planned capital outlays. The Chicago Bank thus reports that capital expenditures may be heading for a boom, as additional firms increase appropriations. St. Louis and Boston note that orders for capital goods are rising, and Cleveland reports that machine tool companies in the area are expecting a boom in new orders. Indications of rising plant and equipment outlays were also mentioned by other Banks, including Dallas, Philadelphia and New York.Against this background, reports from a number of Banks, including Cleveland, St. Louis, Richmond and Chicago, pointed to a further improvement in the industrial production picture, with manufacturers' new orders, shipments, and backlogs on the rise. Cleveland reports strong demand for steel, and that output in certain other durable good industries that had been sluggish since 1970 is beginning to rise. St. Louis notes that all manufacturing industries in that District reported higher levels of output in recent months. The Texas production index reached record levels. A number of Districts, including Cleveland, reported constraints on production stemming either from capacity limitations, difficulties in obtaining supply, fuel shortages (in part due to cold weather), or from a shortage of skilled labor.
Most reports on construction suggest that total activity in that industry, on balance, has stabilized at or near recent high levels. In certain areas, including the Richmond and St. Louis Districts, a rise in nonresidential construction offset declines in residential building activity.
There were indications that the employment picture has continued to improve somewhat. Boston reports tightness in some labor markets in the midst of pockets of high unemployment. Cleveland notes that employment in that District continues to expand at a more rapid rate than in the nation. Richmond reports a severe shortage of textile workers, and Chicago, St. Louis and Dallas all note increases in employment in their areas.
Concern over inflation remains in evidence. Philadelphia reports that over one-half of the respondents in its monthly business outlook survey expect to pay higher prices over the next six months. Atlanta states that the main concern of businessmen is that inflationary pressures will mount. Dallas, St. Louis and Boston respondents voiced expectations of further price increases. Respondents in a number of Districts remarked that the rise in certain farm products would eventually be reflected at the retail level.