July 9, 1975
All but two of our directors are of the opinion that the recession has bottomed out. The general consensus is that the recovery will be spotty. Gains in personal income and a turnaround in industrial production are expected to occur first. However, new housing construction, automobile sales, and unemployment will respond at a much slower rate. Since these are popular indicators, some directors think that their trends will have an adverse effect on consumer confidence. Concerns about future energy costs, government debt financing, and high mortgage rates add to the existing caution on the part of consumers and businesses to commit themselves to large expenditures. In spite of this, however, a halt to the general decline has been observed and new orders are beginning to involve larger quantities.
Throughout the District, consumers are continuing to behave cautiously and are not yet willing to assume debt in order to purchase big-ticket items, especially automobiles. This attitude is most prevalent in Utah. In the Pacific Northwest, business at the retail level appears more buoyant. Contact with apparel manufacturers and a large appliance distributor in that area reveals that new orders are picking up. Tourism and recreation expenditures are showing gains over last year, and soft goods sales are increasing as a result of strong promotional efforts.
Aircraft manufacturers continue to experience a softening in the rate of new orders. Our banking directors report there has been a recent strengthening in loan demand from the utility, transportation, shipping, and energy industries, but utilization of bank lines by general manufacturing, food distribution, and forest products remains soft. Within the food industry, however, both agricultural and food processing loan demand have been strong. In some areas financing requirements of auto dealers have increased as they have been forced to carry unusually large inventories due to slow sales.
A director connected with a large nonferrous metals firm reports that "order intake in our industry has improved in the past three weeks at a modest rate and we expect the order rate to continue to improve." Another director from the lumber industry reports steady sales for the past three months, at levels 15-20 percent below the fourth quarter of 1974. Orders for the recent period have been small in size and for short delivery. Although this trend is continuing, his company is now receiving inquiries for third quarter delivery or mail shipments in larger quantities. He states further that corrugated containers have maintained a slight improvement over April lows but that the lumber and plywood market which showed signs of recovery in May has slipped back to April levels in both prices and volume. His company forecasts a rather slow recovery in that field over the next 9-12 months.
The recovery in new residential construction is expected to be very slow. Over the next six months, if the unemployment rate and mortgage rates remain high, demand for new housing is expected to be moderate.
In agriculture, the farmer has been caught in a cost-price squeeze of significant proportions. Farm prices and demand are generally off. Labor, machinery, fertilizer, and feed costs are much higher than last year. There has been some firming of beef cattle prices in recent weeks, but the situation is generally one of oversupply.
A director connected with the food industry in Idaho comments, "It appears that most agricultural crops, particularly the cereal grains, shall be in a surplus situation caused by high yields and lack of export opportunities. For the first time in several years we are noticing inventory buildups in implement yards, and new tractors are readily available." In contrast, the dairy business is up, and productivity is increasing.