July 13, 1977
Most districts report continued improvement in economic activity and a generally optimistic outlook for business. Consumer durables are still selling well. Manufacturing and residential construction remain strong. Doubts persist regarding the likely paths of business investment in inventories and in plant and equipment. In the agricultural sector, low prices and drought are having depressing effects on farm income in some areas. The demand for bank loans is generally strong, but business loans are weak in some districts.
Reports on consumer spending vary, although most districts note a continued high demand for durables. Kansas City says retail sales are much stronger. St. Louis reports a continued rise, and Chicago a continued vigor in consumer spending. Boston observes that retail sales have recovered from a recent slump. Minneapolis finds slowing growth in retail sales; Richmond reports little change in the level of retail sales; and Atlanta says retail trade presents a mixed picture. Philadelphia describes department store sales as uneven, while New York calls them "slack" in June. Strength in durables is mentioned by New York, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, and Kansas City. Cleveland finds expectations of a reduced pace of consumer spending during the second half of 1977, but retailers are reported as optimistic by Kansas City, Boston, New York, and Minneapolis. In contrast, Philadelphia describes merchants as generally bearish about the second half as a whole. Summer tourism is reported as excellent by Minneapolis and Philadelphia, but as off to a slow start by Atlanta.
Manufacturing activity continues to increase, but at an apparent slower rate. San Francisco finds production still strong in aerospace and pulp and paper industries. Dallas notes growing manufacturing output generally, except in transportation equipment. St. Louis says manufacturing appears to have leveled off somewhat, and Philadelphia describes conditions in the industrial sector as only marginally better. But Richmond reports improvement in the manufacturing sector, especially in machinery and electrical equipment. Boston says its region's manufacturers are experiencing strong demand, while Atlanta mentions increased demand for certain hard goods such as castings. Cleveland reports a mixed recovery continuing in capital goods industries.
An unusual degree .of caution characterizes investments in inventories and capital projects. New York feels capital spending plans are slowly gaining momentum, but Philadelphia finds no substantive change during the month. San Francisco describes investment plans as mixed, while Richmond finds manufacturers content with current capacity. Atlanta sees an acceleration in industrial building activity, but Cleveland projects a weakening in steel production. Just as inconclusive are the observations on inventories. St. Louis describes them as being maintained at very low levels. Boston and Cleveland, however, report possible overaccumulation. Kansas City, Minneapolis, and Philadelphia retailers call their inventories satisfactory; Philadelphia and Richmond manufacturers appear content with their current levels.
Residential construction is continuing its boom, according to reports from Atlanta, New York, Chicago, St. Louis, and Minneapolis. Dallas and Chicago say high occupancy rates are spurring construction of office buildings, and New York notes an impressive recovery in demand for Manhattan real estate. Atlanta finds commercial construction is increasing. Particularly encouraging were scattered comments about lower inflation and inflationary expectations. Philadelphia notes a lessening in upward pressure on prices. Boston says fears of inflation seem to have abated. Retailers reporting to Kansas City do not expect inflation to accelerate. New York observes that builders? concerns about inflation appear to be waning, and New York respondents do not expect reimposition of wage-price controls. Dallas, however, projects no appreciable slowdown in the current rate of inflation.
Agricultural developments are touched upon in several district reports. Minneapolis, Chicago, Kansas City, Dallas, and San Francisco point to low farm prices. Dallas reports reduced cash flows to Texas farmers due to low wheat prices. Kansas City expects a large wheat crop, and other crops are reported doing very well by Chicago, San Francisco, St. Louis, and Minneapolis. Atlanta indicates heavy losses resulting from drought, and a rise in price for Florida citrus fruit. Richmond reports being hard-hit by drought, too, but District farm income is up there nonetheless.
Loan demand is reported as strong by Minneapolis, Richmond, Cleveland, Kansas City, and, at small banks, by St. Louis. St. Louis finds business loans demand relatively low at large banks, while Philadelphia says business loan demand is still weak although consumer loans are generally increasing. San Francisco reports a very modest growth in business loan demand. Chicago sees little change in the generally sluggish loan demand for large businesses.