October 21, 1975
Economic recovery is taking hold in the Third District. For the third month in a row, area manufacturers report that business conditions have improved. New orders and shipments continue to increase, and there are additional declines in inventories. At the same time, employment has increased and the manufacturing workweek has lengthened. However, prices paid for supplies as well as those received for finished products are both higher. The outlook for the next two quarters is for the expansion to continue. Manufacturers expect new orders and shipments to be higher, and no further cuts in inventories are anticipated. In addition, these businessmen expect both work forces and the average workweek to expand. But it's anticipated that prices will continue to climb and capital spending will rise only slightly. Area retailers report increased sales and look for an upward trend through the spring. Bankers report that deposits are level or off slightly, while loans remain flat.
Manufacturers in the Third District, responding to this month's business outlook survey, report a higher level of economic activity compared to last month. This is the third consecutive month in which 35 percent or more of the respondents have indicated an improved business climate.
In fact, none of this month's respondents reports a decline in economic activity. More than one-fourth report higher levels of new orders, and shipments are up for a similar proportion of the respondents. Inventories are down, on balance, but the cutbacks are smaller than those reported in the previous few months. Of the manufacturers surveyed this month, the proportion reporting lower stocks exceeded those reporting higher ones by only 7 percentage points.
In July, by comparison, declines exceeded additions by 43 percentage points. The current expansion in manufacturing is also reflected in employment, which is up again this month, and in the average workweek, which is longer.
The outlook for the next six months remains optimistic. More than 80 percent of the executives polled look for an increase in overall business activity. Seventy percent expect new orders to be higher by April, while 68 percent anticipate an increase in shipments. Inventories are expected to stabilize over the period. In addition, almost 40 percent plan to add to their work forces, and there are plans to lengthen the workweek further. Modest increases in capital spending are also expected, but plans are still cautious with almost two-thirds of the manufacturers polled planning to maintain current levels.
Retail executives report increases in sales after adjusting for seasonal factors. Apparel and fashion items are reported to be selling well and one contact indicates very good sales of hard goods. These executives look for a strong Christmas season and most expect sales to trend upward through the spring. Most of the merchants contacted feel that consumers are more price conscious than in the past and one notes, "as a result, it becomes more difficult to maintain profit margins, let alone increase them." All of the retailers indicate that their inventory-sales ratios are at desired levels, but one anticipates some supply problems by year-end because manufacturers aren't building inventories fast enough. Most of the merchants report that in terms of credit collections they see signs that consumers are finding it easier to pay bills on time.
On the price scene, manufacturers report that prices they pay for
their supplies, as well as prices they charge for their finished
products, are up from last month. Prices paid are decidedly higher
with none of the respondents reporting lower prices and close to 60
percent paying higher ones. Prices charged are up somewhat as well
with a little over
one-fourth reporting increases. The outlook for
the next six months is for additional increases. More than three-fourths of the manufacturers surveyed expect to be paying higher
prices by April, and 70 percent expect to be receiving higher prices
for the products they sell. Retail executives report that, in
general, the prices they pay and charge continue to move up.
Area bankers report that, after adjusting for seasonal factors, demand deposits are level or down slightly and savings accounts are flat. Most of the financial executives contacted report that they lost deposits to the Treasury during the latest offering, with one banker indicating a gross outflow of at least $15 million. All of the bankers surveyed are aware of California Federal S&Ls offering of mortgage-backed bonds last month, and the majority report that they're looking into it as a possible way of circumventing Regulation Q ceilings and of achieving a better alignment of maturities. Loan volume is reported to be level or down somewhat, and the outlook is for it to pick up as recovery continues. One banker reports a slight pickup in consumer lending, and he looks for a further increase of 10 percent next year. These bankers look for short-term interest rates to rise gradually, and they expect inflation to be in the 6 to 7 percent range through next year. The majority of those contacted feel that if prices climb at a faster pace while M1 grows at 7-1/2 percent or less, the chances of the recovery aborting will increase. There is general agreement that the tax cut in effect now should not be allowed to lapse, at least until the economy expands further.