June 11, 1975
The overall picture that emerges from the views expressed by Second District directors and other business leaders who were contacted recently is one of a further moderation in the rate of the economic decline, if not of an actual turnaround. Retail sales rose strongly in May, further progress has been made toward reducing inventories, and district crop prospects look good. The auto and construction industries continue to display weakness, however, and the demand for bank credit remains soft.
The retail sales picture brightened considerably over the past month. According to a survey by a local newspaper, sales at major New York City department stores, which had been running below last year's levels during the first four months of this year, were nearly 4 percent higher this May than in May 1974, while retail sales for the entire metropolitan area were 5.4 percent higher than a year ago. According to an official of a trade association, New York City area merchants have become markedly more optimistic. On the basis of his contacts with local retail firms, he reported that, while the May increase was in good part accounted for by increased apparel sales, sales of major appliances and furniture had also increased. He felt that the improved retail sales atmosphere was due largely to a strengthening in consumer confidence, with the tax rebates playing only a minor part. The president of a nationwide department store chain felt that consumer purchases of durable goods would likely increase as economic recovery takes hold, a sentiment shared by other respondents. The Buffalo Branch directors reported strong retail sales in western New York in May, in some areas as high as 15 percent above a year ago, and expressed optimism that consumer spending would remain strong at least through early summer. The respondents, however, were generally cautious regarding the near-term outlook for automobile sales. Several businessmen expressed the view that auto sales might not improve significantly until the introduction of the 1976 models. The president of a large steel firm stated that he was cautious regarding auto sales, but he noted that millions of autos continue to be scrapped yearly and that a "hidden" demand must be building up.
Regarding inventories, the retailers reported a substantial decline from high levels at the turn of the year, although the president of the department store chain mentioned above felt that durable goods inventories remained high. The president of a steel corporation reported that his firm was reducing its stocks on hand and that the firm's customers have rapidly reduced their inventories, which should be at "normal" levels by the beginning of July. The president of a nonferrous metals producer, on the other hand, observed that, despite inventory liquidation, stocks of metals other than steel remain at high levels. Among senior officials in the chemicals industry, several reported inventories under control, although one felt that his firm's stocks were still too high.
Turning to agriculture, a Buffalo Branch director with farming interests reported that spring weather conditions have been ideal for crop planting. If the favorable weather conditions continue through harvest time, the prospects are for very high yields in most crops. The high yields are expected to result in lower prices in general, except for certain vegetable crops where the carry-over from last year was particularly low. Beef prices are expected to remain strong, but lower prices are anticipated for eggs and poultry products.
On the darker side, none of the respondents expressing views on the subject were optimistic over the near-term outlook for the construction industry. Among others, a senior official of a large New York City area savings bank reported that, as a result of a large inflow of deposits in recent months, his bank had much more funds available for mortgages than there was demand for such funds, and he did not expect a turnaround in construction activity for at least four to five months. Some observers noted the recent tendency of depositors to shun higher-yielding certificates of deposit in favor of regular savings accounts, suggesting that they may be building up liquidity for withdrawal in the near term. The Buffalo Branch directors generally felt that the 5 percent tax credit and the large inflow of savings deposits had not provided a stimulus to residential construction sufficient to overcome the depressing effects of the uncertainties arising from current economic conditions and high construction costs. They expected a gradual recovery in the housing sector but felt a quick return to the high levels of 1972 and 1973 does not seem likely.