February 7, 1973
On the whole the economy continues strong. Manufacturing activity is rising in most areas and is expected to continue upward. Labor markets are tightening and some labor shortages are reported. Inventory investment is reported to be rising only slightly, but plant and equipment spending is increasing as some manufacturers find themselves operating at near-capacity levels. Residential construction is continuing at a high level in most districts. Commercial construction is rising according to some reports. Retail sales generally remain strong. Farmers are making larger than average incomes despite various operating problems. However, on the darker side, inflationary expectations are rising significantly. Bankers report some credit tightening and frequently mention rising interest rates.
Production activity is rising. Most districts report increases in new orders, shipments, order backlogs or similar barometers of manufacturing activity. Some districts (St. Louis, Richmond, Boston) talk of strong increases in output. Durables manufacturers are mentioned with more frequency than non-durables producers in the various districts' discussions of rising manufacturing. The Richmond district's furniture manufacturers are operating at a high level of output despite labor shortages. San Francisco reports that activity at Seattle's Boeing facilities are picking up. Cleveland refers to "dramatic increases in orders for machine tools."
Labor markets are tightening in some places. The Dallas report speaks of "particularly buoyant" employment opportunities. Labor shortages are reported in central Florida. In St. Louis labor markets are "very tight" and employment for Research and Development personnel is picking up. No general labor shortage appears to exist, however. Minneapolis, for example, reports no shortage of skilled labor. Boston reports both labor shortages and pockets of high unemployment. Manufacturing jobs in Philadelphia aren't presently increasing. Cutbacks in the Federal budget are mentioned as a possible cause of unemployment pockets in some locales.
Most districts discussing inventories (New York, Cleveland, Philadelphia, Richmond) report that spending from this sector is not bullish. New York mentions "no discernible change in inventory." Cleveland talks about inventory investment leveling off at a lower level.
Plant and equipment spending is on the rise. The steel industry and consumer durables manufacturers in Cleveland's district are expected to expand their facilities. Chicago reports that an informal survey there revealed that manufacturers in the following fields are operating near full capacity: paper, petroleum, refining, machine tools, appliances, furniture, color television, trucks, recreational vehicles, electric motors, construction machinery, flat rolled steel, foundries, tool and die shops, lumber, gypsum board, insulating material, fertilizer and certain chemicals. Many firms in Philadelphia's monthly survey are currently reporting plans for increased plant and equipment outlays.
Residential construction is expected to rise or at least continue unabated in most districts. Minneapolis conducted a telephone survey of HUD officials and found that "the freeze on subsidized housing should not effect district homebuilding in 1973, but could dampen residential construction in 1974 and 1975." However, Atlanta and Dallas do refer to diminishing rates of housing starts. San Francisco expects that its high level of construction may turn down. The reports on non-residential construction are mostly bullish.
The outlook for retail sales is generally good, although some districts do report that sales are still recovering from a lull that followed holiday buying. San Francisco's sales expectations are optimistic and they point out that tax refunds should boost consumers' spending this spring.
Inflationary expectations are rising on a broad front. Chicago reports that the oil companies there are not entering into their usual one or two-year contracts with oil truckers and other large users because of expected price rises. Philadelphia reports that the respondents to its survey report significant increases in their expectations about prices for the second month in a row. Minneapolis reports that some labor unions there plan to disregard the 5.5% wage guideline. New York reports that a number of its respondents are so concerned about inflation they think that price controls are probably necessary.
Most bankers across the nation are experiencing rising loan demand from businessmen and consumers. Applications for mortgages also show few signs of diminishing. Some Boston bankers are being more restrictive in granting lines of credit. Time and savings deposits are providing a small amount of new funds in most of the cases reported.