June 23, 1971
The views expressed by the directors of this bank and the Buffalo branch, as well as by some large retailers, point to a continuing gradual increase in consumer spending, but very cautious inventory policies by businessmen. In general, most respondents looked for a slight easing in wage demands, but do not expect any marked change in the price picture. Opinions regarding the strength of the demand for business loans indicated some strengthening on balance.
With respect to consumer spending, all the Second District directors and retailers who expressed an opinion on the subject felt the upward trend was continuing. A number of the respondents, however, adopted a relatively cautious attitude towards the strength of retail activity. Thus, the treasurer of a large nationwide chain of retail department stores specializing in softwear felt that much of the rise in his firm's dollar volume reflected higher prices, with the physical volume of sales running only moderately above last year. He felt that official tabulations indicating increasing strength in consumer spending were somewhat exaggerated, and reported that his firm as well as other retailers he had spoken to had not as yet seen signs that consumer retail outlays were reaching such proportions. As a result, he felt that "doubt was cast" on some of the official statistics. Similarly, while the vice president of a large New York department store with branches in the suburbs reported a "healthy" rise in his firm's sales in dollar terms, he noted that higher prices accounted for a good part of this increase. All of the Buffalo branch directors detected a continuing upward trend in retail activity, with a "spurt" in some areas related to seasonal factors. The New York bank directors, however, characterized the pick up in retail sales as "moderate" to "slow".
All of the respondents felt that businessmen were continuing to pursue cautious policies toward increasing their inventories, and that such building as was taking place was largely due to special circumstances. The chairman of the board of a large manufacturing concern reported that he knew of no company accumulating inventories with speculative motives," but he thought that some accumulation was taking place as the result of special factors, such as anticipations of strikes and environmental protection measures—especially the spreading ban on phosphates and restrictions on the paper industry. The vice president of Rochester's largest firm also reported that strike-hedging purchases had resulted in a substantial increase in inventories at his firm. However, he also pointed to the trend among retailers to limit their inventories and to rely increasingly upon the ready availability of adequate stocks from jobbers and distributors. The retailers who were contacted indicated there had been a slight rise in their inventories in preparation for an expected increase in sales activity later on in the year.
The views of the directors regarding business loan demand seemed to indicate some strengthening. Thus, the presidents of three upstate banks and the chairman of a large nationwide manufacturing concern felt that the demand for this type of loan had increased in recent weeks, and one pointed particularly to the strength in the mortgage area. And, while the chairman of the board of another upstate bank reported that his bank had not experienced any strengthening of loan demand, he noted that business loans are not a major part of his portfolio.
The respondents all continued to voice concern over the wage and price situation, although on balance the opinions expressed seemed slightly less pessimistic than a month ago. Thus, Buffalo branch directors reported some slowdown in the rate of wage increases, particularly among nonunionized concerns, and felt this trend might continue for the balance of the year. On the other hand, no significant change in the rate of advance of prices was evident to any of the Buffalo directors. One of the two New York City manufacturing executives on this bank's board saw inflation as continuing, but detected signs of an easing in wage increases. The other New York manufacturer saw a pattern of first-year wage increases averaging about 10 percent "less of a disaster" than previous increases, but "still a disaster" since he expected productivity to rise by only 3 percent to 3 1/2 percent in most industries.