June 11, 1975
Business conditions showed signs of improvement in most parts of the country, according to this month's Redbook reports. The rise in unemployment appeared to have slowed, but joblessness was not expected to decline soon. Retail sales revived noticeably in most districts, led by seasonal merchandise and some consumer durables. Retailers generally appeared to have achieved comfortable inventory positions. Manufacturing activity continued to be weak, but there were scattered signs of improvement. The inventory situation improved for producers, but stocks were still above desired levels. Automobile sales and residential construction remained sluggish. Financial institutions continued to gain funds, and loan demand remained almost uniformly weak. Agricultural conditions were generally good across the nation.
New hirings and worker recalls were cited as evidence of labor market strength. However, new layoffs and labor force increases were expected to keep unemployment rates high. Workers were being recalled by several industries in the St. Louis and Atlanta districts, and Richmond reported a significant increase in manufacturing employment and hours worked. Despite the high level of construction unemployment in Chicago—about 30 percent—building trade unions won wage increases of 5 to 8 percent; in Dallas, increases of 10 to 11 percent were won.
Most districts reported a marked improvement in recent retail sales, and retailers apparently felt they had largely re-established sound inventory positions. A revival in consumer confidence, warmer weather, vigorous sales promotions, and price cutting were all cited as important stimulants. Almost none of the retail sales gain was attributed to the tax rebates. Warmer weather was credited with improving soft goods sales in Chicago, Boston, and Philadelphia. Large appliances and furniture sold well in New York, Chicago, and San Francisco. Automobile sales remained sluggish across the country, except in the Atlanta region, where truck sales were particularly strong.
District reports on manufacturing activity were mixed. St. Louis, Dallas, and Atlanta, for example, reported some improvement in the sales of textiles and apparel. A Philadelphia survey indicated that new orders were up for the first time since last September, and Richmond reported a firming up in manufacturing shipments and new orders. In the Cleveland district, the decline in manufacturing activity decelerated in May. Respondents to a Minneapolis survey, however, revised their 1975 sales expectations downward.
Most durable goods sales were adversely affected by cutbacks in capital spending. Capital goods producers in the Chicago area reported cancellations and rescheduling of orders, while a few encouraging signs in the capital spending sector were noted by Cleveland. Boston, Chicago, Cleveland, and Dallas commented that sales of oil field equipment were down because recent tax increases had dampened oil companies' enthusiasm for drilling.
Most respondents said manufacturers had made progress in cutting inventories, but stocks in many cases still exceeded desired levels. The Philadelphia and Richmond surveys, for example, found an improved inventory situation, but further liquidation was expected.
Recent gains in residential construction activity in most districts were modest at best. For instance, new housing starts were up slightly in Philadelphia, and new home sales improved somewhat in Chicago. But the stock of unsold houses remained large in the Atlanta district. Residential construction was also slow around St. Louis, although commercial construction was proceeding more rapidly.
New York attributed lagging construction activity to current economic uncertainties and to continuing high construction costs. Dallas and St. Louis said that mortgage lenders had been reluctant to lower rates, thereby inhibiting a turnabout in residential construction.
Savings inflows at S&Ls continued to be strong, and time and savings deposits were generally up at commercial banks. However, lending policies remained cautious. Overall loan demand at both banks and S&Ls was still sluggish; in the Richmond district, for instance, commercial and industrial loan volume fell steadily in May. Consumer loan demand also remained weak, in large part because of lagging auto sales.
Spring planting proceeded rapidly in the nation's corn belt in May. Kansas City expressed concern that a bumper winter wheat harvest might depress farm prices and incomes. Crop conditions were good except in the Deep South where cotton planting was far behind normal and in the areas of the West where cool weather had retarded growth.