July 9, 1975
The directors remain optimistic inasmuch as they sense a firm halt to the economic slide coupled with the emergence of a modest recovery. Their attitude has shifted from a defensive posture to a guardedly aggressive outlook. Before, they talked of salvaging the situation; now they discuss strategies for business advancement. However, with an eye to recent experience, they are proceeding conservatively; and, although they are hopeful about the future, they stress that the recession has eroded conditions in New England substantially. The May rate of unemployment in New England was 11.6 percent, an increase of .2 percentage points from April. Connecticut, Massachusetts, and Rhode Island report unemployment rates of 9.8, 12.6, and 16.2 percent, respectively.
In various areas of the region, construction contractors have found jobs; however, they remain concerned since they are committed for less than one year typically. In residential construction, the outlook remains bleak. Interest rates, attitudes, and incomes are sufficiently depressing to forestall activity at this time. Banking directors, in an attempt to remain flexible, would warmly entertain short-term construction lending, but the directors are finding the opportunities to be sparse.
A director close to the Boston job market reports that firms are showing renewed interest in hiring personnel. However, only individuals with business or technical skills are required. While selected professionals face improved employment conditions, the rank and file suffer an extremely soft job market showing no signs of improvement presently.
Matching the employment situation, high-priced real estate is showing renewed life while inventories of medium-to-low-priced housing remain substantial.
Retailing in Boston continues well. One director who had planned June to be 5 percent over last year achieved sales increases of 10 percent. May and June have been two good months for soft goods; and, although weather is given a good deal of credit, "the presence of more money in the pocket is evident." The retailer notes that hard goods lines remain weak but improving. He partially attributes the success of soft goods to a reduced consumption of durables. The director is not increasing fall buying or reviewing his plan of 5 percent. He is not betting on a rapid recovery.
This director also reports that manufacturers' inventories are very low in his lines. However, the manufacturers are content to remain leaner and tighter, for they too are cautious. Prices are firm; no boom is encouraging markups, and rashes of panic sales have waned. A surge in retail sales would elicit a direct response in production activity.
Carbon black sales have changed little recently. As a result of sluggish conditions, a price war has broken out. Owing to high capital costs, some suppliers are attempting to improve market share enough to increase capacity utilization and profits. Sales of silicon pigments, used widely in the economy, are beginning to close upon records set in 1974. Super alloy metal sales, on the other hand, are continuing to weaken to the concern of our reporting director.
Banking directors report healthy deposit performance. Both demand and time deposits are increasing sufficiently fast to warrant a reduced reliance on borrowed funds and large certificates of deposit. Business loan portfolios remain weak, and consumer credit shows little life as well. Interest rates are moving according to expectations. Short-term rates are expected to change little from current levels over the summer, but in the fall they are budgeted to rise. The prime rate may break 8 percent by December.
Of our academic correspondents, only Professor Samuelson was available for comment this month. He continues to believe that that economy has probably begun a recovery, but he stresses that there is "not a momentous V bottom" in his outlook. Small increases in short-term interest rates are appropriate as the economy regains its course. In his assessment, recovery will not be aborted if we allow interest rates to develop their own momentum to a degree; however, should they reach 10 percent, we may want to be more expansionary. Samuelson has noted that most models now tell us that the path of prices is largely independent of real growth. He feels that there is a "germ of truth" to this, and accordingly he would like to see money growth of 7.5 percent if we must observe the 5-7.5 percent target. Since the target covers a 12-month horizon, he sees no reason to engage quick corrections for the recent overshoot. The recovery requires attention if we are to avoid disappointment.