September 15, 1976
Many business executives, who report demand for their products to be far less robust than in 1973 and early 1974, emphasize that they look back upon the chaotic multiple-ordering and gray markets of that period with horror. Distortions, partly caused by price controls, made accurate readings of the underlying strength of their markets impossible. Businesses are attempting to keep tight control on costs relating to capital expenditures, purchase commitments, and use of labor. Some say that "the financial people are in control today," rather than the sales people who made the big decisions in the last boom.
Lead times have lengthened further on average, despite margins of unused capacity. Cancellation of the scheduled October 1 steel price boost reflects buyer resistance and their reluctance to build inventories. Except for a few items such as special castings, there are no reports of current shortages. The 130-day tire strike, apparently, did not affect vehicle output at all, but supplies of snow tires may be tight this winter. Relatively easy supply situations do not necessarily mean stable or declining prices. Producers have raised prices of rubber products substantially, although "quietly." In another example, paper prices are expected to average 5 to 7 percent higher this year, followed by another 6 percent rise in 1977, despite ample capacity.
Large retailers indicate that sales were stronger in most departments in August. Apparel and fashion goods sales continue below forecasts, however. Retailers' inventories are judged to be fairly well-balanced because of cautious ordering policies. Sales are expected to rise further in the months ahead.
Sales of major appliances are below expectations with freezers far below last years Sales of "built-ins" going to individual remodeling projects as well as to new construction are quite strong.
Retailers and other suppliers of consumer wants comment that luxury products are in strongest demand, a phenomenon noted throughout the recession. Airline travel measured by passenger miles has been about 10 percent above last year in recent months with all of the gain in pleasure travel. Flights to Hawaii are virtually filled.
Sales of autos and other vehicles to consumers have continued at an excellent pace. As many dealers exhausted their supplies of large cars, sales of small cars, including imports, were stimulated. Some small cars have been sold at cut-rate prices, especially certain 1975 models still on hand after two years. Inventories of new models are less ample than a year ago and production is being pushed hard with Saturday work typical. General Motors is anxious to "get a reading" on public acceptance of its new lines of lighter, shorter "big cars." Chicago area sales will be watched as a bellwether for the nation.
Light truck sales have been at record levels for some months with a large share going to consumers. Sales of medium (10,000 to 26,000 pounds), have remained slow. Sales of heavy trucks have increased, but not as much as expected, and advanced production schedules may have to be pared back. A producer of diesel engines is operating at all-time high levels, and wonders if orders for truck engines will be maintained, Meanwhile, sales of diesels for construction equipment and industrial uses have not increased significantly.
Most producers of equipment report that demand has improved, but very gradually and the picture is "spotty." In general, it is the "early movers"-smaller equipment and components such as controls and smaller electric motors—that have showed the largest gains with the "laggers," including most types of heavy equipment, still slow. A producer of heavy industrial cranes and large mining shovels reports that order backlogs are eroding rapidly and production may be reduced from current record levels in the months ahead. Machine tool builders have been pleased with recent increases in orders and expect substantial additional orders to be placed during or after the 10-day biennial machine tool show now being held in Chicago (September 10-17).
Stocks of all types of petroleum products are ample. One forecast of the rise in total sales this year has been reduced from 6 to 4.5 percent, mostly because vacation driving has been less than anticipated. A "normal" winter or worse could mean some problems with availability of fuel oil, and, also, further curtailments of natural gas. OPEC nations are now expected to increase crude oil prices by 15 percent at yearend, double the rise expected earlier, mainly because of stronger than expected demand outside the U.S.
Lead times on cold-rolled steel and galvanized sheets have been cut by half since late spring. One forecast of steel shipments for 1976 has been reduced from 98 to 96 million tons because user inventories are not being increased as expected, not because consumption is less than expected. Local analysts point to a change in steel order patterns with "reservation planning" by large users over a longer horizon.