February 7, 1973
Most businessmen contacted report little change in current business conditions in the Third District, but the six-month outlook is more optimistic. New orders and shipments are up after a temporary lull which followed the Christmas rush. Current employment opportunities are flat, but the six-month outlook for hiring is good. Most of the respondents to this District's survey are satisfied with their current level of inventory, but many expect to increase inventories within six months. Plant and equipment investment is increasing. Housing demand continues strong. Demand for bank loans continues to expand but deposits are flat. These positive factors are partially offset by inflationary expectations, which have risen significantly for the past two months.
According to the respondents of this Bank's monthly Business Outlook Survey, production activity in the Third District is rising slowly again after it temporarily slowed after Christmas. About 20 percent of the firms responding to the Survey report increases in their new orders and new shipments. Most other respondents report no change in their production, but looking into the future most area businessmen are bullish. Sixty-five percent of the respondents to the Survey currently expect increases in their new orders and shipments within the next six months.
Employment opportunities in this District are flat. Over 80 percent of the firms report no current change from last month in their number of employees or the length of their average work week. But, employment prospects for the coming months are brighter. Over 40 percent of the responding firms expect to increase their number of employees, and a fourth expect to increase their average work week within six months.
This is a significant increase in the six-month employment outlook over what was reported one month ago.
Most area businessmen report that they are not currently expanding their inventories. However, within the next six months half the respondents to this Bank's Survey do expect to increase them. Plant and equipment spending plans for the next six months are the same as they were last month—half the firms plan to increase their investment and a third expect no change.
Construction activity in the Third District is recovering from local delays caused by a cement workers' strike during December. Most of the construction underway in this District is residential rather than commercial or governmental.
Inflationary expectations rose again this month. A fourth of the Survey respondents are paying or receiving higher prices this month while the rest report no change. In the next six months two-thirds of the firms expect to receive higher prices and three-fourths of them expect to pay higher prices. This is the second month in a row in which inflationary expectations rose significantly. Most of this increase is on the respondents' six month horizon rather than in the current month, however.
Third District bankers report that both their savings deposits and their demand deposits are up only slightly, after allowing for the seasonal fluctuations. The bankers say they must buy CDs if deposits
are needed. Two of the bankers contacted pointed out that there was a negative spread for funds acquired in the CD market at current rates (after adjusting for reserve requirements) and then loaned at the prime rate of 6 percent. One large bank reported a "tremendous" monthly increase in its business loans. The other banks report continued good demand for business, consumer and real estate loans.