July 12, 1978
Although businessmen increasingly regard prospects for late 1978 and 1979 as questionable, recent business reports have been largely good. Consumer spending, still heavy, may have weakened a bit in late June. Inventory trends are not clear, but we may be in for some additional accumulations at the producer or wholesale levels. Construction activity and prospects remain strong. Credit demands are hefty, with sources of loanable funds generally adequate. Farm product prices have softened; dry weather and labor shortages have made trouble for crop producers.
Retail sales remain generally strong, but directors in several areas reported a moderation in late June, particularly in sales of big-ticket items. Elsewhere, durables still appear to be dominating the sales gains. More than one retailer has complained of sluggish repayments.
Passenger cars have been moving at a rapid clip, with no one type clearly a favorite. Some dealers are disappointed with the short margins and slim profits they've pulled on their heavy volumes. Many are dubious that such high sales levels can be maintained through the fall. One director has already noticed a "drastic slowdown" in his area.
Because of good sales prospects, businessmen plan to accelerate their stock building through the summer, according to one director. Retailers seem more cautious in their buying for fall and spring 1979, says another.
Judging from the recent volume of announcements of new plants, capital expansions, and relocations, nonresidential construction activity and building materials production should be quite strong for several months. In Florida, a number of huge, long-term residential developments, many backed by Canadian, Latin American, or European money, have emerged from the planning stages. Forecasts of a condominium shortage on the Gold Coast by year-end have become common.
Demand for consumer, mortgage, and business loans continues vigorous and has contributed to a rapid run-up of interest rates, particularly local prime rates. An economist for a large Florida holding company commented on the number of "marginal" business borrowers who have "come out of the woodwork." His organization feels it can be rather selective and still make all the loans it wants (it's also planning for a "rather severe" recession within the next few months).
Deposit inflows can still be characterized as moderate at most banks and savings and loan associations. Updates on the six-month CDs suggest that they are indeed drawing funds largely from passbook savings, bringing in roughly one-third new money. There have been a few more reports of S&Ls having trouble meeting loan demands—they've either quit accepting new applications or pushed back commitments to the fourth quarter, when they expect funds to be more adequate.
Prices of cattle and calves have been steady to slightly lower since late May. The near-term outlook is for continued leveling, but live prices may yet fall to forestall further increases in retail beef prices, which have already met resistance from consumers. Heavy marketings continue to delay the rebuilding of cattle herds. Broiler placements are expanding rapidly in response to increasing prices. Most crop prices have weakened in recent weeks. A dry spell in the eastern part of the District has been threatening growing crops; in the western area, weather conditions have improved. The shift to soybeans has continued, with producers in some areas bidding up rents and drawing land out of pasture to expand acreage. A labor shortage in central Florida has left nearly 10 percent of the orange crop still on the trees and forced early closings of several concentrate plants. Unmanageable harvest costs, strong competition from Mexican produce, and mediocre crop quality have prompted some south Florida vegetable growers to open their fields to public harvest.
Businessmen continue to be most deeply troubled by inflation and what they perceive to be a lack of effective government measures to restrain it. In August, 11,000 Southern Bell employees will receive a 7-percent "cost-of-living" pay raise.