March 10, 1976
In the opinion of our directors, the recovery is proceeding at a
moderate pace, with demand strengthening across a broad range of
economic activity. Consumers, in particular, have been responding to
an eased feeling about economic prospects by stepping up purchases
of both small- and
large-ticket items. Except for copper, demand for
minerals is increasing, and operating ratios in the forest products
industry are up. New orders for commercial aircraft, however,
continue to decline. Agricultural income will probably ease off from
previous peak levels in 1976, but still constitute a good year. Bank
loan demand continues to be very soft; industrial loans are not
expected to increase much in the near future because of the high
level of corporate liquidity.
Twelfth District retail sales continue to strengthen across the board. Price competition among retailers, especially at food stores, has been reflected in increased advertising expenditures; to many consumers, prices now do not seem any higher than a year ago. Consumers seem willing to buy large-ticket items but still have a psychological reluctance born of the recession, which sellers must overcome. In line with the national experience, awakened interest in larger cars has been reported, although most lines are sharing in the revival of automobile sales. High inventories of petroleum products are insuring stable to soft gasoline prices at the pump.
Demand for aluminum is reported to have increased, and steady gains are expected to bring the industry to 100 percent capacity in twelve months. Copper output is still at a very low level, but coal production is up sharply. Representatives of the lumber and wood industry generally report a "cautious upward movement in volume in most lines". Many continue to be worried, however, about the effort of environmentalist pressures on the future of the industry: Paper and pulp mills are being reactivated slowly. "The corrugated container business has been gradually slipping since January of this year, and it is not expected to pick up before the second half of 1976. Plywood business, however, is better than anticipated." New orders for commercial aircraft continue soft, and employment is declining, but revenue passenger miles flown are showing signs of recovery, which should have a favorable impact on orders in the near future.
Although new housing construction continues depressed, there has been a noticeable enlivening of building permit activity in many geographic areas of the Twelfth District. The permit activity generally recognizes that the apartments and condominium market continues in an overbuilt condition, but demand for single-family homes has turned the corner. There has also been a scattered but increasing number of inquiries at banks about industrial real estate loans "with no particular concentration on any industry".
The agricultural community anticipates a good but not spectacular income year. Investments in new machinery and farm buildings are being planned very carefully. Because of the somewhat precarious nature of export demand, it has been noticed that farmers are inclined to hold their crops back and speculate on better prices. This has often been detrimental to the farmer, and ways are being sought to develop a more consistent marketing program.
Demand for loans continues sluggish over most Twelfth District states, although preliminary inquiries are on the increase. Because of the high liquidity of major corporations, no significant upsurge in business loan demand is anticipated in the near future.
Beginning last October, a large increase in passbook and new corporate savings accounts was reported by District banks in all size categories. These inflows have tended to flatten out since mid-February. Many banks report that the new corporate savings accounts are very active, being treated almost like demand accounts, and are highly interest sensitive. Many of these accounts represent transfers from demand deposit accounts or funds provided by maturing CDs. "As money market rates on alternative financial instruments diminished, significant inflows were realized; and, alternatively, as these rates increased, the flows tended to diminish."