PDF《CONFIDENTIAL (FR)》

nondurables, particularly apparel and department store sales, have weakened. Explanations include cool weather, smaller tax refunds, a shift from nondurable to durable purchases, as well as a return to a sustain- able growth rate. Boston reports some retailers are cutting back on future commitments, while Philadelphia expects such action to follow, should the present tendency be confirmed. Dallas reports that the fall apparel market, held in May, was weak for women'

s and some men'

s clothing lines. Richmond and Philadelphia note continued optimism among most retailers;

Cleveland finds that some remain positive, but one director fears a spending decline serious enough to trigger a double-bottom recession. Each of these three Districts notes an excessive level of retail inventories. The inventory condition of manufacturers varies greatly. Dallas finds factory inventories manageable, and Kansas City notes attempts by many firms to retain a lean inventory position. Philadelphia finds a decline in inventories of manufacturers for the first time since January, but Chicago reports cautious inventory building. One-third of the manufacturers in the Richmond District report an excessive inventory level, with most others indi- cating satisfaction with their condition. Capital spending remains static. Boston finds a disappointing demand for machine tools. Chicago notes an improvement in capital goods orders but expects no uptrend until late in 1976. Cleveland expects little gain in the strength of fixed investment during the second half. An exception exists in the case of capital investment in agriculture, where strength is noted by Minneapolis and Chicago. New York, Chicago, Kansas City, and Cleveland find environmental regulations to be a source of uncertainty and a major disincen- tive to capacity expansion. Price behavior is consistent with a normal cyclical pattern. Spot shortages have caused sporadic price increases, as in newsprint;

but in cases such as heavy crude oil, chemical fertilizer, and carpet yarn, oversupplies are causing price shading. Prices are generally expected to behave normally within the context of a cyclical recovery. Loan demand continues to increase slowly. Business loans have inched up, according to St. Louis, Richmond, and Kansas City but have not increased in Philadelphia. Gains in consumer loans are widespread. St. Louis reports moderating savings inflows. Kansas City finds some banks beginning to rebuild certificates of deposit. Minneapolis reports that the recent drought will almost certainly curtail crop yields in Minnesota and has now spread westward into the Dakotas. The main impact is expected on prices of barley, oats, flax, and durum wheat. San Francisco reports weak demand, low prices, and surpluses of beans, pota- toes, and wheat. However, a possible beef shortage is foreseen for late 1976. Richmond notes a sharp decline in the winter wheat crop and freeze damage to the peach crop. FIRST DISTRICT - BOSTON The New England directors reported a pause in the recovery. Although they did not anticipate a growth recession in 1976, they continued to monitor with concern housing and new machine tool orders for signs of recovery. Retail sales were also sluggish in the weeks following Easter. Except for shortages reported by lumber suppliers, regional productive capacity is generally excessive. For the past several months, requests for quotations have been more numerous in the machine tool industry. However, the expected improvement in orders has not materialized. The machine tool suppliers have been main- taining relatively high operating rates by filling order backlogs, but a continued lack of new sales would entail significant layoffs in the second half of the year. One director, who has been observing the very gradual increase in orders for short-lead tools, was hopeful that quotations will begin to generate new business. Retailers have become uncertain about the outlook for their trade. Believing that the economy is fundamentally sound, they were surprised that business is falling off against expectations. In fact, a director comments that retailers are becoming considerably more conservative and that typical retailer stocks are way too high. Even though this weaker sales experience may be the product of recent seasonal distortions, our director reports that merchandisers are cutting back on future commitments. Industrial capacity is generally more than adequate in relation to sales throughout the region. Normal operation rates are based on the assumption that overtime is modest and that one and one-half or two shifts of personnel are employed each day. Although Increased sales will now require more hiring (productivity gains have been fully exploited), new orders have a long-long way to go to absorb existing space and equipment in most industries. Directors typically asserted that capacity utilization is about