August 13, 1975
Recent observations by Second District directors and other business leaders indicate a continuation of the gradual improvement in business conditions noted in recent months. Retail sales in July were generally stronger than in June, and there were some indications that retailers were starting to replenish inventories, at least in a small way. There continued to be reports of excessive inventories at the manufacturing level, but the list of items in excess supply has narrowed substantially. The demand for business loans at banks has shown little buoyancy as yet, but some indications of a forthcoming strengthening of loan demand were noted. Regarding wages, the respondents generally expected this year's increases to be smaller than last year's.
Retail sales have strengthened somewhat over the past several weeks. Despite considerable rain and unseasonably cool weather through most of July, sales at most major New York City department stores were slightly higher than in July 1974, with an even stronger performance shown by stores in the suburbs. (In June, sales in the metropolitan area had been lower than in the comparable period last year.) Similarly, the retail sales picture in upstate New York was reported to be brighter than in June, with sales also running above last year's level.
Views on retailers' inventory policies were mixed. The president of a large nationwide department store chain reported that efforts to build up inventories have begun, although as yet only to a limited extent. Similarly, the president of an upstate department store stated that, to a "small extent", retailers in his area were building up inventories. A senior official of a conglomerate felt that on the basis of his firm's sales, merchants were cautiously building up inventories of apparel, automobile parts and accessories and, more aggressively, storm doors, thermopane windows and similar items. The president of a non-ferrous metal firm reported increased sales of his firm's kitchen utensils line and believed that in general retailers were relaxing their inventory policies. One director, on the other hand, stated that retailers were still maintaining a "relatively conservative" approach in their inventory policies. Similarly, the Buffalo branch directors saw no evidence of efforts to build up retail inventories in Western New York, but rather felt that the emphasis continued to be on inventory reductions and improved inventory controls.
There were some indications of continued excessive inventories at the manufacturing level. For example, the chairman of a large New York City bank stated that in some cases inventories of materials used in the production of durable goods remained excessive. The president of the metal firm mentioned above reported excessive inventories in the electrical goods industry and among aluminum producers-although not among the latter's customers. Other respondents cited instances of still excessive inventories of various items, including steel, zinc, canned food, and furniture.
The respondents in general reported little increase in business demand for bank loans, but some very tentative indications of a forthcoming strengthening of demand were noted. For example, the chairman of a major New York City bank observed some increase in requests for long-term loan commitments. On the other hand, a director observed that many companies were seeking to stretch out repayments of outstanding loans rather than enlarging their lines of credit. However, an upstate New York banker reported a "small" firming of loan demand at his bank, and a New Jersey banker noted a modest increase in construction loans. At the same time, several respondents opined that the resumption of inventory accumulation in some lines will result in stronger loan demand before long.
Regarding the wage picture, virtually all respondents agreed that wage increases would be more moderate this year than last year, particularly, but not exclusively, for nonunion workers. Among others, an official of a conglomerate stated that workers were "dreadfully afraid" to be laid off and that this would be reflected in substantially more moderate wage demands than last year. The president of a Rochester department store "definitely" expected weaker labor demands. Buffalo branch directors cited instances where employees have foregone wage increases to preserve jobs.