July 9, 1975
The decline in economic activity is over, but recovery will likely be protracted, according to this month's Redbook reports. Consumer spending continues to firm in most districts, on the strength of sales of nondurable goods. While retailers have managed to work off inventories to comfortable levels, some inventory liquidation continues in the manufacturing sector—particularly for producers' equipment. Labor markets have stabilized, and some workers that were laid off earlier in the year are expected to be recalled by the end of summer. Residential construction faces a long recovery even though mortgage lending is up in a few areas. Deposit flows continue strong at commercial banks, but loan demand remains weak. Bumper crops are expected in most areas of the nation, and farmers face a decline in grain and soybean prices this fall.
Most districts indicate that consumer spending continues to improve, primarily on the strength of nondurable goods sales. Although somewhat stronger, purchases of durable goods remain generally weak. San Francisco states consumers are still cautious and are unwilling to assume debt for big-ticket items. New car sales are up modestly but remain well below the year-earlier level. Foreign cars, on the other hand, are selling briskly, according to Atlanta. Spending for tourism and recreation is up substantially across the country.
Retailers have managed to pare inventories to low levels and appear reluctant to rebuild stocks. In fact, New York and Dallas report some retailers may now be understocked, and Chicago reports increased sales would require retailers to restock. Manufacturers' inventories of consumer goods have for the most part been worked down to acceptable levels. But other manufacturers are continuing to run off stocks. Metals inventories remain excessive in New York and Atlanta, and manufacturers of producers' equipment are still liquidating inventories in Cleveland and Chicago.
Prospects for industrial output are mixed. Capital goods production continues to fall with no near-term recovery in sight. The outlook for production on consumer goods, on the other hand, is more favorable. Because inventories are generally low at both retail and manufacturing levels, increased consumer spending should quickly result in stepped-up production.
Although unemployment remains high, job markets appear more stable than in recent months. Kansas City's survey of purchasing agents, for example, reveals little change in manufacturing employment recently. Several districts report demand in some job categories appears to be firming. In Boston, companies are showing renewed interest in hiring personnel with business and technical skills. And Richmond reports over a third of the manufacturers surveyed have recently begun to rehire. In addition, the start up of production lines this summer will require worker recalls in both Chicago and Kansas City.
While there are scattered reports of increased construction activity, home building remains weak throughout the country and will be slow to recover. High costs are the major deterrent to home buyers, according to Boston, New York, Chicago, and San Francisco. Chicago and Dallas mention residential construction is being constrained in some cities by a lack of building sites, as land developers have been unable to obtain financing for these ventures. But New York and Atlanta report improved sales of new homes. In the Southeast, residential construction is on the upswing, largely because of government funding of military housing. And St. Louis and Minneapolis mortgage loan demand has turned up sharply.
Deposit flows continue strong at commercial banks, but demand remains weak in most loan categories. According to Dallas and Philadelphia, loan demand is expected to remain sluggish throughout the summer. However, there are scattered reports that bank lending may be picking up. For example, St. Louis notes a rise in loan demand, and Kansas City states that lending for inventory accumulation has risen. San Francisco reports a growing demand for loans by utilities, transportation and energy companies, and the food industry.
Bumper crops are expected in most areas of the country, although adverse weather has affected production in some states in the Richmond, Atlanta, St. Louis, and Minneapolis Districts. According to Dallas, farmers fear increased production will lead to lower prices this fall. In the Kansas City District, farmers seem to be holding their wheat in anticipation of higher prices but will have to sell part of the crop before year-end to pay production expenses. A recovery in livestock prices has led to an increase in the number of cattle placed on feed.