November 12, 1975
The economy has continued to recover, according to this month's Redbook reports, but the recovery has been uneven due to a persistent sluggishness in several regions and industries. Retail sales improved this fall, and retailers expect a good holiday season. With some exceptions, manufacturing activity has improved in recent weeks, but building activity has remained off nationwide, and business loan demand has been slow in most districts. Opinions vary concerning effects of a possible default by New York City. Favorable weather conditions have resulted in better than expected crop yields in many areas.
The nation's retailers were generally optimistic about their holiday sales prospects because of improved retail sales this fall. However, their optimism was guarded, resulting in tight inventory policies. Consumers were still usually characterized as "trading down" or hunting" and as being "quality conscious" and "exceptionally cautious."
Retailers in the Boston and Cleveland districts experienced disappointing sales this fall and were therefore less optimistic about holiday sales than their counterparts in other districts. For example, a November survey by the Richmond bank indicated substantial sales gains and the first increase in sales of big-ticket items in over a year. Sales of big-ticket items, except furniture, remained weak in most other districts, while clothing was apparently selling well nationwide.
Automobile sales presented a mixed picture, with sales increases reported by St. Louis, San Francisco, and Minneapolis. The two latter districts also noted an improvement in truck sales. New York indicated that the new small cars met with a good reception, while the reverse was true in Kansas City. Despite a slight increase in new car sales, Cleveland noted a lack of enthusiasm for the new 1976 models.
Present inventory positions were regarded as satisfactory by most retailers, and caution had prompted only modest restocking. Retailers in several districts stated that they preferred the risk of running out of some goods rather than facing an overstocked position after Christmas. Prices were reportedly steady to increasing slightly in most districts, although retailers in Philadelphia noted some easing in prices.
Although reports varied, manufacturing activity appeared to be slowly recovering. Surveys by Richmond and Philadelphia indicated improvement, and St. Louis, San Francisco, and Cleveland stated that manufacturing shipments had advanced. Other indicators also denoted better conditions. Richmond, for example, found that inventories had been brought into line with sales. Chicago, however, pointed out that many manufacturers were still cutting inventories but indicated some stocks appeared to be "approaching leanness." Philadelphia, St. Louis, and Richmond reported increases in manufacturing employment, but Chicago indicated few companies were actively hiring. Furthermore, while Philadelphia indicated capital expenditures by manufacturers were beginning to pick up, several districts said capital goods producers and steel producers were experiencing continued difficulties.
Construction continued to be depressed nationwide, although St. Louis noted a substantial increase in building of single-family units. There was little evidence of a recovery in nonresidential construction.
Most districts reported that business loan demand was slow, though seasonal lending needs were up in some districts. Kansas City and Dallas attributed flat loan demand to the moderate pace of inventory rebuilding, while Philadelphia cited present excess industrial capacity and substantial corporate liquidity. Boston and Philadelphia both anticipated little significant increase in loan demand for the next three to six months.
Banks were divided in their assessments of a possible default by New York City. Chicago and Kansas City expected the impacts would be relatively minor, and many San Francisco directors felt the market had largely discounted the default. Boston, however, believed that a constructive workout prior to default would save "some anguish" and that the Administration had "underestimated the wrangling, chaos, and cash drain that default would entail." New York said its district was being adversely affected by the city's difficulties, though directors within the New York district were split in their assessments of the impacts of default.
The nation's harvest had been nearing completion ahead of schedule under near-perfect weather conditions. Yields had been better than expected in many areas, and Dallas, Richmond, San Francisco, and Minneapolis were among the districts noting improved farm income prospects. Kansas City and Dallas stated that there had been a sharp upturn in cattle feeding, and Atlanta said that the movement of range livestock to market had been progressing at a record pace.