September 13, 1972
The views of this Bank's head office and Buffalo Branch directors on the economic situation and outlook remain about unchanged. On balance, the directors believe the recovery is continuing, and they remain reasonably optimistic about the outlook. The primary concern voiced about the future was the prospect for worsening inflation. It was stressed that the collective bargaining calendar for 1973 is heavy, the Federal deficit is large and widening, and that wage and price controls might be dismantled prematurely. On the brighter side, several directors cited evidence of a strong capital spending outlook for 1973, and there were a number of comments that indicated further improvement in the local employment picture.
The performance of retail sales were generally pictured as little changed from the recent past. Retail demand was described as strong in New York City, Rochester and Jamestown. One banker director did say his information indicated a somewhat mixed picture in the upstate area, but went on to attribute that to special local factors such as bad weather. Several directors also observed that retail sales are generally stronger in the suburbs than in the central cities, and that back-to-school buying had been encouraging.
Concerning prospective business plant and equipment outlays, several directors felt such outlays would rise rapidly in 1973. An upstate banker said he expected "very strong" capital spending on the basis of his bank's loan commitments for "pay out" in the first half of next year. A senior official of the largest upstate firm also expressed confidence that capital spending would show "an impressive gain", in part as a result of the ample availability of both external and internal funds. The president of a major oil company saw the possibility for an improvement next year in his industry's capital spending picture, following the drop that had occurred in 1972. Another director also foresaw continued rapid growth of capital outlays by municipal governments. On the other hand, one upstate banker stated that he did not look for a significant upgrading of existing capital spending plans, and an upstate manufacturer pointed to the current level of unused capacity, as well as to the uncertainties related to the election, as factors currently inhibiting the expansion of capital spending plans. Also, the president of a large metal producing firm stated he was "not bullish" with respect to plant and equipment spending in the metals industry, in part because of continued excess capacity and depressed profits.
The directors, with some exceptions, felt the current demand for commercial and industrial bank loans was not particularly strong. The major exception was the chairman of the board of a large New York City bank, who stated that there had been a substantial pickup in commercial and industrial loans at his bank since mid-year. An upstate banker reported some strengthening in connection with a continued rapid growth of capital outlays by municipalities. The New Jersey banker reported a good loan demand from local businesses, but noted that borrowings at his bank by national corporations has as yet remained modest. Also, several upstate bankers characterized current commercial and industrial loan demand as "quite soft". One of these bankers, however, said the current weakness might be seasonal, and that he was expecting a strengthening in demand in the coming months. The senior official of the largest upstate firm also felt loan demand was picking up, but not as rapidly as might be expected in the light of the pace of the economic recovery—a fact he attributed in good part to the current highly liquid positions of many large corporations. Similarly, an upstate manufacturer observed that current industrial cash flow seemed sufficient to fill normal financial needs. The president of the major oil company reported that bank credit to the petroleum industry had been declining since mid-1969, partly because of increased reliance of those firms on the commercial paper market.
The responses concerning the employment picture were encouraging. Continued strength was reported in the Rochester area, where there is now a shortage of skilled personnel, especially in the construction industry. A similar assessment was made by the New Jersey banker who, as an example, reported that his bank has had difficulties in obtaining people to build a new bank building. And, the president of the major metal producing firm noted that the employment situation in the coal industry has continued to improve.
Finally, broad concern was expressed by the directors over the outlook for wage and price inflation. References were made variously to the "unhealthy" Federal budget situation, to the heavy collective bargaining calendar for 1973 and the possible pace-setting effect of large wage settlements recently negotiated in Canada, to the prospect for higher gasoline and heating oil prices later this year as supplies run short, and to fears that existing wage and price controls might shortly be scrapped.