July 9, 1975
Second District retail sales developments have turned mixed since the vast improvement witnessed in May. While some retailers report continued strong sales, a number of them have apparently experienced some slippage in sales. For the most part, District retailers are comfortable with the current level of their inventories. Excessive stocks persist in a number of lines at the manufacturing level, however. Most industry observers remain gloomy about the outlook for residential construction, in spite of the pickup in sales of new homes. Regarding the price outlook, a number of respondents were fairly optimistic that price increases will be restrained in the near term, but many expressed fears of a resurgence of inflationary pressures over the longer run.
Recently we asked our directors and a number of other business leaders about their opinions on the danger of a near-term resurgence of inflation in view of the apparent bottoming-out of the recession. Most respondents felt that, for the near term, high levels of unused human and capital resources will help to restrain price increases. There was a strong undercurrent of apprehension about the longer run price outlook, however, with particular concern voiced over excessively stimulative fiscal policies. For example, the president of a large chemical firm felt that, while a near-term resurgence of inflation was a possibility, his real concern was over the longer term. Similar sentiments were expressed by the Buffalo branch directors. Among other respondents, the president of a large department store chain stated he expected some firming of prices by year-end, while another observer felt that wholesale prices for many industrial goods were bound to rise in order to cover rising costs. The chairman of a multi-national oil company expressed the fear that excessively expansionary fiscal measures to stimulate the economy might reignite inflationary pressures. Similarly, a senior official of a large New York City securities firm stated that his greatest concern was fear of renewed inflationary pressures under the impact of massive budget deficits and union demands for large wage increases.
The District retail sales picture has turned mixed in the wake of the almost uniformly buoyant sales in May. Most of the respondents commenting on developments in the upstate New York region reported that retail sales in June had run 3 to 7 percent below sales in the comparable period a year ago, although some reported sales continuing above year-earlier levels. Similarly, sales at most New York City department stores, after improving strongly in May, apparently fell back in June, in some cases to levels below those of 1974. On the other hand, the chairman of the New York outlet of a nationwide department store chain characterized the sales picture as very good, not only at the New York store but nationally. The president of another large department store chain observed a continuation of the improved sales at his firm that had begun in May. He expressed the view that this continued improvement heralded the long-awaited upturn in consumer spending.
Regarding inventories, a number of respondents felt that the liquidation of stocks at the retail level had about run its course. Indeed, one retailer expressed the belief that most retailers had been understocked since February. There were, however, reports of continued inventory excesses at the manufacturing level. For example, one director noted that steel inventories still remained at a high level, as well as those of textile fibers. The president of a nonferrous metal firm reported that there were still significant inventories of metals and metal products. The Buffalo branch directors felt that while inventories in general have been reduced to acceptable levels, spotty excesses still prevailed in some lines, including certain agricultural products, furniture, and new automobiles.
The respondents in general were less than sanguine regarding the residential construction picture. Several noted the recent improvement in sales of newly built homes but qualified their remarks by pointing out that such sales were still below those of the comparable period last year. A director felt that a gradual improvement in housing demand would continue but that it would take a long time before housing starts reach two million units annually again. An Upstate banker expressed the belief that the residential construction industry was still a long way from being in good health. And a senior official of a large thrift institution felt that an upturn in housing was not yet in sight because of the high cost of construction.