August 10, 1973
The business advance of previous months is continuing at a slower pace in the Third District. Industrial activity showed gains on all fronts surveyed, and there was a slight improvement in employment reported this month. Plant and equipment expenditure plans are up at almost half the firms contacted. Retail sales are brisk. Loan demand at banks is very strong, but banks can only raise additional deposits by selling certificates of deposit (CDs). On the darker side, price increases are widespread.
According to this month's Business Outlook survey of manufacturers in the Third District, industrial activity is still rising. New orders, shipments, unfilled orders, and delivery times are continuing to increase slightly, but the six-month outlook isn't as favorable. Nearly 40 percent of the executives surveyed expect business to be below current levels, while only 25 percent anticipate further improvement.
At the present time, increasing business activity is having a slightly favorable effect on employment. Over three quarters of the respondents report no change in their number of employees and the length of their average workweek, but most of the remaining firms are experiencing increases in these categories. The employment picture isn't expected to change much in the next six months. The number of firms expecting layoffs equals the number of firms expecting to increase their hiring. However, more firms expect to cut the length of their workweek than to increase it.
The continued high level of business activity is causing area businessmen to increase their investment; almost 45 percent report plans to increase their plant and equipment in the six months ahead. In addition, the stock of inventory is increasing gradually.
Retail sales are strong in the Third District at the stores contacted. Fashionable clothing is selling very well at the department stores, and auto dealers report that sales are strong.
Not a single firm surveyed reported a decrease in the prices it pays or the prices it receives, but over half reported paying higher prices this month. Six months from now, over 65 percent of the firms expect to be paying and receiving higher prices.
Large city banks are experiencing very strong loan demand from all the major sectors, but deposits are not keeping pace. Time deposits increased, but are starting to flow out again now. As banks reach their legal limits on high interest saving certificates and disintermediation resumes, two bankers voiced strong resentment about Government pressure to keep the prime rate below the rates at which they are raising money. These bankers are filling lines of credit at the prime rate—but only reluctantly—because they feel they are losing money on the loans. Area bankers can still sell their short-term CDs if they pay high. enough interest rates) but one banker said he thought that nonbank financial intermediaries were almost in a credit crunch now.
Corn and wheat prices continue to advance strongly in a commodity futures market in spite of the bumper harvests projected by the United States Agriculture Department. These rising prices are based at least partially on fears that large exports will deplete the harvest. In addition, the rising grain prices are pushing up the costs of raising cattle and chickens. As a result, future prices on beef and broiler chickens are rising sharply too. This is taken as an indicator that retail meat prices will skyrocket when the ceilings are removed.