November 10, 1976
The general trend of business continues to be listless according to reports from this District's directors. No increase in consumer spending beyond seasonal gains is anticipated for the holiday season. The steel industry is being adversely affected by the lack of demand for new plant and equipment construction and, although the housing industry is pulling itself out of the quagmire, it faces many unpredictable elements which confuse the market and make project planning difficult. In many industries, prices are reported to be stable, but the overall conditions of sale are showing signs of weakness. Corporate loan demand is not expected to increase significantly until well into 1977.
Demand at the retail level has been sluggish and no change is anticipated through the end of the year. Inventory-ordering has been completed for the Christmas season at levels which would be in line with a normal seasonal increase in sales. The market for new cars is spotty, ranging from "very good" to "fair" across the District. Deposit flows continue high which indicates consumer caution and a high savings rate.
Commercial and industrial construction continues weak except in Utah and Idaho where capacity levels have been reached in a few lines. New storage facilities are being built to service this year's large harvests. Housing construction is on an up-beat. One director reports that insurance rates for contractors have risen astronomically. In the Los Angeles area where new home prices have been rising 2.8 percent per month, there have been the first signs of an adverse consumer reaction and it is expected that this rate of increase will diminish very soon.
There is over-all softness in the forest products industry. Lumber demand, which had been strong earlier in the year, dipped in September and prices have slipped 5 to 10 percent over the past two months. "Downtime" is increasing in the board and paper areas, reducing operating rates below the 90 percent level experienced in the first half of 1976. Capacity growth over the next four years is expected to be only 2.2 percent per year, slightly less than over the past four years.
Steel output has declined reflecting the low levels of demand for new plants and equipment. In the earlier part of the year, aluminum business was considered strong, but it has dropped off somewhat to a level that is expected to be sustained until next spring. On the other hand, demand for copper is strong. Nationwide output of copper has risen nearly 10 percent during the first seven months of 1976, and stocks were reduced nearly 20 percent below year-earlier levels. In Utah, production of lead and zinc for the first seven months of 1976 was up nearly 45 percent from the previous year.
In spite of generally unfavorable weather conditions, the fall harvest for many crops exceeded last year. Fruits, wheat, beans, and potatoes are in heavy supply and storage facilities are bulging. Prices have declined for both crops and livestock; quotations for wheat, barley and potatoes have dropped 10 to 20 percent over the past month. The field price for potatoes is below $2 per cwt. In the livestock market, feeder cattle are getting 20 to 30 percent less than a year ago, lamb prices are holding steady, but hogs are lower by 30 to 40 percent. "Anyone who held his 1975 steers lost money because of low prices, high cost of feed and interest on financed money."
Although most manufacturers report that prices have been stable over the past month, there appears to have been some softening in the "conditions of sale." Producers who are unable to reduce prices because of rising costs are beginning to compete by improving quality. In agriculture, prices of burlap sacks, container cartons, fertilizer and insecticide have been declining this year, whereas costs of gasoline, oil and general repair parts have been slowly increasing.
In response to a question regarding business loan demand, one director who is the president of a large west coast bank reported as follows: "Over the last two months we have been noticing modest increases in commercial and industrial loans especially smaller and medium sized companies. We expect these modest increases to continue between now and the end of 1976. The structure of increased demands among various industries reflects that while corporate liquidity is high, it is not pervasive enough for all firms that are realizing increased working capital and investment spending funding needs. Stronger trends in investment spending are not likely to result in significant increases in corporate loan demand among large companies until well into 1977."