September 10, 1975
The tone of the Redbook this month can be described as "cautiously optimistic." Virtually every District reports that its economic slide has bottomed out and its economy is moving in a positive direction. The recovery process described by Boston and Chicago is still quite weak, while the rebound in Minneapolis and Dallas is somewhat more solid—though not robust. Unemployment rates are still very high, but this month's reports suggest distinct progress in most Districts. However, inflation shows some well-publicized signs of heating up again. An analysis of the national economy by sector produces an equally mixed picture. The manufacturing sector is weak but seems to show distinct signs of improvement. New orders are up and inventory stocks are down. Retailers report sales slightly above last year's levels, and tourism is rather strong. Current crop prospects in the agricultural sector are inconclusive, and farm earnings for the first six months of 1975 are below those of 1974. Construction is still very weak in most regions of the country. Bank lending to consumers is picking up, but commercial loan demand remains soft. Disintermediation is also showing signs of becoming troublesome in a few Districts.
One of the most encouraging developments to surface in the reports this month is a brightening in the job markets across the nation. Many Districts report declining unemployment rates, albeit from very high levels. St. Louis reports that total employment is finally rising again in its region, and one Minneapolis director describes the labor market in a part of that District as "tight." Philadelphia, Richmond, and Dallas note a lengthening of the average workweek in their Districts.
The outlook for inflation is not as encouraging. In varying degrees, most Districts report renewed concern over rising prices. Directors of the Minneapolis Bank see "no widespread resurgence of rapid inflation" for the present, but this confidence is not mirrored in the other reports. Richmond, New York, Chicago and San Francisco all note the anxiety of their respective business communities over the prospect of rekindled inflation. Despite substantial amounts of unused capacity, several basic manufacturing industries are reported to be raising prices. The fear of a reimposition of price controls is mentioned by San Francisco as a reason contributing to the recent price hikes.
In most parts of the country manufacturing is starting an upswing. Richmond, Atlanta and Philadelphia all report higher levels of new manufacturing orders. Petroleum, chemicals and metals are strong in the Dallas District, while mining and pollution control equipment are bright spots for Chicago. The process of cutting inventories appears to be nearly over. The only consistently weak area in manufacturing is the capital goods sector, especially for New York and Chicago.
Retail sales are a bit more encouraging. New York and Dallas both note that department store sales are quite strong in their regions. Auto sales are also showing gradual improvement. Richmond and New York also mention that the tourist business in those regions does not seem to have suffered much from the recession. The agricultural reports vary from region to region. Chicago is optimistic since recent rains have improved the chances for record crops in several states within that District. However, Kansas City reports that rainfall has come too late to help the fall crops in its area. Both Richmond and Kansas City report that cash receipts from farm marketings for the first half of 1975 were below levels posted a year ago in their regions.
The construction industry remains in the doldrums throughout much of the country. Atlanta, St. Louis and Minneapolis report marginal improvements in the health of that sector, but these areas are clearly the exception. The general picture is still one of weak or sluggish markets for single-family housing and very depressed markets for multifamily units. Nonresidential construction is also badly depressed. The dual culprits are reported to be high construction costs and uncertainty about future mortgage rates and financing.
The situation of the country's banking community has changed little in the last few weeks. Loan demand is generally weak, with the exception of consumer loans which are showing some life in Richmond, St. Louis and Kansas City. Boston notes that loan officers in its area are still "occupied with a lot of workouts." The picture on deposit flows is rather mixed with some Districts reporting net inflows while others report mild outflows. Disintermediation is not yet a serious problem, but several Banks mention concern in their regions that it could become serious. Kansas City and St. Louis both indicate that the possibility of future disintermediation may be a drag on recovery of the housing industry.