July 15, 1970
In the Second Federal Reserve District, Directors of the Federal Reserve Bank and other business executives saw some signs that prices were easing, indicated they believed the recent stretch-out of capital spending plans would continue into 1971, and expressed the opinion that, in general, inventories were higher than business firms desired. While it was thought the current strains in the financial markets did not pose a serious immediate threat to business activity, considerable concern was expressed regarding business liquidity.
Only two of the Federal Reserve Bank Directors who attended the
early July meetings at New York and Buffalo were aware of any price
shading by manufacturers, but more directors mentioned other signs
of an improvement in the overall price situation. These included
announced price cuts, particularly at the retail level, as well as
price shading at the retail level by giving the customer greater
value. With regard to
under-the-counter price adjustments, it was
reported that Bethlehem Steel Corporation had taken a strong
position against such a marketing practice. As for announced cuts by
manufacturers, one director noted receiving an announcement of a
three percent reduction in the price of cans for packaging
beverages. At the retail level, there has been considerable price
cutting by automobile dealers as well as by other retail outlets,
with the aim of either reducing inventories or building sales
volume.
Retail store sales reportedly were holding up well, except at downtown stores and during night shopping hours. Sales apparently were being bolstered by aggressive merchandising. The head of a large chain observed, however, that retail stores need an increase of three to three and one half percent in volume to bring profit up to last year's level. Contributing to this need were higher costs stemming from increases in wage rates, in shipping charges, and in shoplifting.
The directors were virtually unanimous in believing that the more cautious capital spending pattern that apparently has developed in recent months will continue into 1971. New programs were being "very carefully reviewed," and many projects were being slowed down or indefinitely deferred. However, projects for which commitments are too far along to be canceled or postponed are being completed, as probably will be projects designed to cut production costs and increase productivity. Although an upstate New York banker remarked that there were no signs of cutback in his area, he observed that most of the capital spending there was on construction for municipalities and school districts, for which firm contracts had been arranged "long ago." On the other hand, a community college construction project for which bids were recently obtained may have to be canceled because the bids are so far above the original estimates.
The few comments made on the inventory situation suggested that inventories were higher than were desired. A New York banker commented that inventories in general are eight to ten percent above a year ago, and that increased inventories were particularly evident in the soft goods area. The chairman of a large manufacturing firm observed that inventories were high mainly because business "is not selling goods as fast as desired," although special factors such as the recent truckers' strike in Chicago had contributed to the buildup, as had "a new permanent inflation factor" that has been built into inventories.
Most directors seemed to believe the current strains in the financial markets did not pose a serious threat to business activity at the present time, although the head of a large New York City bank declared he thought there would be "adverse" effects, but was unable to judge whether these would be "serious." Despite the near-consensus that there was no immediate threat, a number of directors and other business executives did indicate concern regarding financial developments. A banker from upstate New York noted that many businessmen who have long-term financings in the offing are attempting to arrange standby intermediate or short-term credits as possible alternative solutions to their financing needs. An investment banker commented that his firm had been marketing four-to-five year securities for many clients, and that if inflation is not halted, he sees "an end to public financing of debt issues." A large retailer observed that small manufacturers were in serious shape with regard to liquidity; they cannot borrow as easily as very big concerns, and at the same time big retailers are slower in making payments to them than in the past, inasmuch as the discount for prompt payment is less than the cost of borrowing money. Customer payments to retail stores were also noted as slower than usual, The head of a New York academic institution declared the long decline in the stock market had cut gifts to private educational institutions and had drastically reduced the market value of holdings of endowed institutions. Finally, a Wall Street man "guessed" that only 300 of today's 500 New York Stock Exchange member firms would survive the next six months, but regarded mergers, which he believes will accelerate, as desirable.
An upstate New York banker commented there is still "considerable" demand for credit in the Rochester area, particularly for real estate projects, but the head of a giant insurance company observed that the demand for "new money" was "somewhat depressed" and that requests for policy loans had "leveled." This insurance company, it was noted, is moving in the direction of real estate investments and equity participations. The chairman of a large mutual savings bank remarked, late in June, that although official figures indicate a recent pick-up in deposits at thrift institutions, there is no evidence of such a movement in New York City. He thought that most of the deposit money that was being withdrawn was probably going into bonds. He also indicated he was not sure his bank benefited from the use of merchandise premiums, and said he would favor their being banned by the supervisory authorities.