October 10, 1973
The Redbook reports describe a very strong economy with widespread shortages of manpower and materials and substantial upward pressures on prices. Disintermediation at S&Ls, usury rates, and generally tight money have drastically reduced the availability of mortgage funds, with the result that residential building activity is shrinking rapidly throughout the nation. Virtually all other major sectors, including nonresidential construction, remain vigorous with rising backlogs and stretching lead times on deliveries. Inventories of goods, especially raw materials, are lower than desired in most sectors. A wide range of materials and components are in critically short supply. As a result, expansion of output has been dampened and, in some cases, output has been curtailed. Investments in plant and equipment in virtually all industries are rising, and this trend is expected to continue well into 1974. Prospects for crops are generally very favorable. Reports on retail trade were mixed and inconclusive. Reports on credit demands also were mixed, but it is apparent that lenders have no difficulty finding profitable outlets for available funds.
Selected highlights of reports from each of the districts follows. Comments on the universally bleak residential construction picture are omitted.
Boston: Sales and orders of capital goods continue to rise at a rapid pace, but orders for consumer goods are "a little slower." Unemployment remains relatively high. Domestic capital goods orders are particularly vigorous for chemical processing equipment, machine tools, and aerospace. Foreign orders for capital goods are large. Views of four academic correspondents are presented.
New York: Demand for materials and goods remains strong, but slower growth in overall activity is expected. Phase IV is termed a "disaster." Higher prices abroad are drawing away U. S. resources. Labor's wage demands are viewed as under "restraint." Scarcities have hampered attempts to build inventories of raw materials.
Philadelphia: Plant and equipment investment plans have been raised. Employment is rising slowly and workweeks are lengthening. Delivery lead times have stretched out.
Cleveland: Shortages are "constraining" growth in output, and are judged to be the main cause of the recent slowing in the rise in general activity. Moreover, shortages have become more severe in recent weeks. Glass production lines have been shut down for lack of soda ash and increased supplies are a year or more away. Shortages of plastic materials are cutting production of various products. Foreign prices for plastic materials and for steel are well above U.S. prices. Most steel order books have been closed for the year. Inventories are low generally. Some retailers report slower sales. Labor turnover is high. Some firms are hoarding fuel.
Richmond: Business activity continues to expand despite shortages of labor and materials. Paper, synthetic fibers, and chemicals are especially strong. Electrical components are in short supply. Phase IV is criticized. Retail sales remain strong. Nonresidential construction has been maintained. Volvo will locate a plant in Virginia.
Atlanta: Only residential construction is down. Shortages have delayed construction projects. Commercial construction plans announced for the Atlanta area "dazzle the imagination." Industrial projects are being pushed in various parts of the South, and Japanese and European manufacturers are evaluating sites for new plants in the region. Shipyards are being expanded to handle the boom in tankers and bulk cargo carriers. Labor shortages are limiting phosphate mining. Shortages of shrimp and oysters are reported.
Chicago: Supplies of a broad range of basic materials are very tight with no improvement expected in the foreseeable future. Motor vehicle output has been limited by strikes and availability of components. Labor supplies are inadequate, both for skilled and trainable workers. Nonresidential construction has been delayed by shortages of materials. Shortages of steel, nonferrous metals, paper, fuels, chemicals, and plastics are holding down production of finished goods. New labor contracts may be more generous than suggested by announced increases in basic wages. Record crops of corn and soybeans are anticipated.
St. Louis: Widespread shortages of raw materials are hampering output. Plants producing garments, appliances, and hardware are at capacity. Many firms report labor shortages, and unemployment is low. Crop conditions are "good to excellent."
Minneapolis: Retail sales have "not yet let up" and further gains are expected. The outlook is for record crops. Shortages of materials, e.g., steel and plastics, are holding down output. The fertilizer shortage is "critical." Shortages of general laborers as well as skilled workers are reported, and labor turnover has increased.
Kansas City: Recent floods have damaged property and delayed planting of winter wheat, but the overall impact probably will be "rather insignificant." Propane supplies needed to dry crops may not be adequate. Auto sales are very good, especially sales of compacts. Department store sales are strong. Lead times on consumer goods orders are long, but retail inventories are "as budgeted."
Dallas: Employment reached a new high in August. Department store sales increased "rapidly" in September. The CLC's "two-tier" system has allowed prices of "new" crude to rise substantially above prices of "old" crude. Imported crude is high-priced. Fertilizer supplies are limited. Crops are generally "good to excellent" except for a large decline in rice yields.
San Francisco: Housing is the only sector showing a decline. Both business and consumer spending remain strong. Investments by electronics, fertilizer, and chemicals firms are at high levels. Boeing has received additional orders. Farmers are spending freely. Power shortages have caused cutbacks in usage in Oregon. The housing decline has reduced demand for lumber and cement. Drought cut wheat output in the Northwest.