National Summary: April 1976 | The Federal Reserve Bank of Minneapolis

April 14, 1976

Most District reports indicate the recovery continues to rest largely on the strength of consumer spending. In contrast, Boston notes waning in retail sales since late March. Numerous reports suggest that inventory liquidation in trade, steel, and certain types of capital goods has run its course, although businessmen are cautious about building stocks. Capital goods continues to be a source of uncertainty, although scattered signs of improvement are noted. Several reports suggest broad based recovery in capital spending will not occur until later in 1976 or early 1977. Demand for single-family housing is strong throughout the country while multifamily and nonresidential construction is generally weak. Crop plantings are described as ahead of schedule in key agriculture regions of the country, but wheat and fruit crops may fall short of last year's harvest because of adverse weather. Business loan demand remains sluggish throughout the country, while consumer installment loans and mortgage loans are strong.

The recent surge in consumer spending is broadly based. Auto sales and "big ticket" items are reported to be selling well and exceeding expectations, according to nearly all District reports. New York describes the consumer as being less price conscious. Atlanta reports tourism is "booming" on the east coast of Florida and advance bookings for central Florida are heavy. Several Districts commented that retailers are bullish with respect to prospects through 1976.

Tight control seems to keynote comments concerning retail and manufacturing inventories. Higher consumer spending has yet to be translated into higher inventories. Retailers are apparently cautious with respect to building stocks and they are more likely to err on the low side, although a large department store chain will apparently boost its inventory. Low inventories for controls, motors, and timber have strengthened orders for those products, while tire production has been boosted because of an anticipated work stoppage in the rubber industry as well as low stocks relative to sales. Manufacturers' stocks are still excessive, according to the Richmond survey, but the latest survey conducted by Philadelphia indicates that about one-half of the respondents plan to build their inventories over the next 6 months. Chicago notes beginnings of inventory buildup of purchased materials and components, while New York expects cautious rebuilding of inventories that will accelerate with recovery in capital goods.

Manufacturing activity continues to strengthen, despite the lack of thrust from capital goods. Forecasts of steel output for 1976 are being adjusted upward as a result of completion of inventory liquidation and better than expected auto, truck and appliance production, according to Chicago and Cleveland. Atlanta reports allocation of certain types of steel in the third quarter is likely. Considerable uncertainty and caution mark comments with respect to capital goods. New York and Boston see little evidence of recovery while Chicago, Cleveland and Richmond see some pickup in orders for non-electrical equipment and machinery, Cleveland reports machine tool orders continue to rise gradually, while higher than expected orders for printing equipment, bearings, and certain types of construction machinery have led to upward revision in forecasts for those industries. A broad pickup in capital goods is not expected until late 1976 or early 1977, according to Chicago and San Francisco.

Construction continues to be marked by strong demand for single-family housing. Multifamily housing and nonresidential construction remain weak throughout much of the country. Demand for new single-family housing appears strongest in the Southwest, the Midwest, and Southeast. In other areas, however, the market appears strongest for existing houses, and only limited or moderate recovery in new housing is reported. Multifamily construction remains depressed, although scattered positive signs are appearing in some areas. There is very little evidence of a pickup in industrial construction, and St. Louis reports only scattered increases in activity in nonresidential construction.

Reports from agricultural areas suggest conditions are favorable despite drought and an early freeze that could affect crop output. St. Louis, Minneapolis and Richmond report spring planting is ahead of normal in several areas. St. Louis describes prospects for the winter wheat crop as "excellent." although Kansas City expects output this year will be off by about 20 percent from last year. Expected increases in spring wheat production coupled with a large carryover of stocks from the last crop year are expected to offset some of the decline. Kansas City expects that expansion of red meat supplies during the second half of 1976 will constrain livestock prices, despite recent strengthening. Pork and beef output is expected to be about 2 to 3 percent above 1975 levels.

Weak business loan demand is continuing throughout the country, but consumer and mortgage loans have been strengthening in several Districts. Philadelphia reports that some banks are more aggressively encouraging customers to use existing lines of credit, while some larger banks in the St. Louis District are offering loans at below the prime rate to larger business customers. Bankers in Philadelphia do not expect loan volume to increase until the third or fourth quarter. Sluggish loan demand is associated with ample corporate liquidity and rate spreads between the prime rate and commercial paper, according to San Francisco, St. Louis and Kansas City.