September 10, 1975
Bank directors' comments indicate that District business activity has begun to recover. The demand for District workers has recently picked up, and regional labor market conditions have improved. District construction activity also appears to be reviving, and several directors reported considerable building activity in their areas. No widespread resurgence of rapid inflation was seen, but several directors look for prices to continue rising due to the increased cost of doing business. According to our latest Quarterly Industrial Expectations Survey, District manufacturers expect their sales to improve in the fourth quarter and early 1976, but experienced no sales growth this spring and summer.
A feeling that District economic activity generally has improved was conveyed by many directors' reports that labor market conditions are stable or improving in their areas. A North Dakota director actually termed conditions "tight," and three directors said workers were being recalled in their areas.
District labor force data back up these reports of a leveling off in joblessness. The District's unemployment rate, seasonally adjusted, inched up 0.2 percent from April to July after a 1.1 percent jump during the previous three months. And the District's Help Wanted Advertising Index increased 21 percent between May and July, another encouraging development. District initial claims, however, are still running well ahead of a year ago, so some layoffs are continuing.
Construction activity has also improved in the District. Housing unit authorizations in late spring and early summer were up 13 percent from a year ago, and directors' comments indicate that homebuilding has probably continued to revive. Nonresidential construction has also begun to pick up. Concern was expressed, though, that high building costs and mortgage interest rates could restrain future building activity.
Bank directors reported no widespread resurgence of rapid inflation. Several directors said price increases so far have been restricted to food and fuel; they were not aware of excessive increases in other areas. Two directors said their firms have not experienced any renewed inflationary pressures. One director associated with the food industry felt that the impact of the Russian grain sales on food prices may not be as great as many anticipate and that the market overreacted.
Even though directors did not see a sharp return of inflationary pressures, many are worried about inflation and expect prices to continue climbing. Several indicated that increased business costs, especially for labor, would force firms to keep boosting prices in order to maintain profit margins. One director reported considerable resistance to price decreases even in the face of falling demand because businesspeople want to recover their costs and protect profit margins. The possibility of wage-price controls adds to price pressures. A Montana director, for example, indicated that the list prices of farm machinery in his area have been raised largely in response to this fear.
Essentially no growth in the District's manufacturing sales occurred this summer, but manufacturers look for sales to pick up late this year and in early 1976. According to our Third-Quarter Industrial Expectations Survey, second-quarter District manufacturing sales were unchanged from a year ago and no growth is anticipated this quarter. In real terms, sales were undoubtedly down from a year ago since prices increased over the last twelve months. Respondents foresee sales increasing 4.8 percent in the fourth quarter, however, then advancing 10.2 percent in the first quarter of 1976.
Given price increases, these expected gains do not point to any significant pickup in District manufacturing activity. If realized, though, they may be large enough to help check the decline in District manufacturing employment (it's now about 6 percent below a year ago). Also, manufacturers did not revise down their sales expectations as they did last May, so District manufacturing activity may be stabilizing.