March 10, 1976
The Ninth District economy remains on a course essentially unchanged from last month: the pace of recovery is steady but unspectacular. Ninth District directors look for continued employment growth throughout 1976 but do not foresee quick reductions in the unemployment rate. Manufacturers in the District reported a better fourth quarter than anticipated and have revised 1976 sales expectations upward, but they appear satisfied with current inventory levels and current plant capacities. Though some areas in the District are experiencing a shortage of topsoil moisture, most of the District's agricultural regions have not been hurt by drought, and directors say that farmers and ranchers are optimistic about 1976. Finally, though Ninth District directors feel that economic recovery is proceeding at a satisfactory pace, many still feel that "excessive" wage demands might endanger the course of recovery later in 1976.
Unadjusted unemployment rates in the District were up in January, but the increase may have been due largely to seasonal factors such as post-Christmas layoffs in the retail trades and to seasonal lows in farm employment. Seasonally adjusted initial unemployment claims in January were the lowest since August 1974.
Employment in the District has been gradually increasing since June of last year, and most Ninth District directors expect employment growth to continue through the remainder of 1976. Nonetheless, directors do not feel that employment growth will be substantial enough to cause much reduction in unemployment rates. One director, an executive for a large manufacturing concern, says that his firm has increased employment by 6 to 7 percent since mid-1975 but is now holding employment steady; he does not expect the United States unemployment rate to fall below 7 percent in 1976.
Directors from agricultural areas continue to report that unemployment is not a major problem in their regions. A North Dakota director says that firms in his state have been having difficulty finding workers. But a Michigan director says that joblessness in his region remains high due to continuing unemployment in the copper industry. He adds, however, that anticipated advances in the demand for copper later in the year should result in recalls of currently unemployed workers.
Businessmen in the District appear to be gaining confidence in the soundness of the recovery. This Bank's quarterly survey of District manufacturers, taken in early February, indicated that businessmen have revised their 1976 sales expectations upward. Manufacturing sales through the third quarter are now expected to range 14 to 19 percent above year-earlier levels. Manufacturing sales in 1975's fourth quarter were also somewhat stronger than had been expected. The survey gave no indication, however, that manufacturers are planning sizable additions to inventories or increases in plant capacity.
The District's agricultural regions have not been much affected by drought conditions. Though moisture is short in some regions of the District, it is adequate or surplus in other regions. A Montana director says that in his state, where most of the District's winter wheat is grown, moisture conditions are good. Other directors say that recent snowfalls have helped alleviate moisture shortages in areas of Montana and South Dakota.
Directors agree that the District's crop farmers are sufficiently sound financially to withstand moderate losses, even if a drought should occur. A North Dakota director suggests that given current financial conditions among farmers, it would take two consecutive bad crop years to cause widespread financial problems among the District's producers.
Directors say that ranchers in the District are also optimistic about 1976. Cow-calf operators in this District have pared away excess capacity more rapidly than have producers nationwide. Accordingly, with regional supplies somewhat tighter, cow-calf operators have been receiving prices above national averages. The demand for feeder cattle appears to be improving, and one director says that some cattle are now being contracted for fall delivery at about $40 per hundredweight; the advance contracting of feeder stock had slowed in past years because of slack demand from the livestock-feeding industry.
Though Ninth District directors feel that the recovery is currently proceeding at a satisfactory pace, they remain somewhat apprehensive about the possible destabilizing effects of future wage settlements. Some directors also viewed housing and business investment spending as soft spots in the District economy. Several directors commented upon weakness in residential construction in their regions; one director said that he sees little or no improvement in the housing sector in the foreseeable future.