November 12, 1975
Concern over the New York City financial crisis and its possible repercussions was generally expressed by Second District directors and other business leaders that were contacted recently. A number of the respondents, however, felt that the impact of the crisis has now been discounted in the financial markets. The retail sales picture continued to improve, with merchants looking forward to a good Christmas season. There was no evidence of a change in businessmen's cautious attitudes toward capital investments. Business inventory adjustments, in general, were thought to be at or near completion, with scattered exceptions—notably some basic metals.
The district economic outlook continues to be adversely affected by the financial difficulties of New York City and New York State which, as noted by several respondents, are now inextricably linked. The chairman of a large New York City bank, a director, reported that he and a number of other leading bankers felt that a default might have a grave impact on the market for tax-exempt securities throughout the nation and on financial institutions holding such securities. The president of a nationwide chain of department stores thought a default might have a strongly adverse impact on the current business recovery. Some observers noted that the layoffs associated with the city's budget cuts were adding to the already serious unemployment situation in the area and might well have secondary effects on the job situation in private industry. Similar sentiments were expressed by several other respondents. The Buffalo branch directors, however, were on balance somewhat less concerned. While they generally agreed that a New York City default would create some problems upstate, most felt that these problems would not be overwhelming and that much of the possible impact of a New York City default had already been discounted. Moreover, these directors saw a healthy sign emerging from the situation in the increased awareness of the importance of fiscal responsibility on the part of both voters and government officials.
On the brighter side, the retail sales picture continued to improve. A survey by a local newspaper indicated that sales at large New York department stores in October were about 5 percent higher than in October 1974, despite the unseasonably warm weather in the latter part of the month that tended to hold down sales of fall and winter apparel. The chairman of the large chain of department stores mentioned above expected a good Christmas season, with sales at least 10 percent higher than last year. Another leading retailer noted that retail business had been accelerating over the past four or five months, a development he felt augured well for the holiday season. Indeed, most of the respondents expressing an opinion on the subject looked for a good Christmas buying season. A number of directors noted that the new automobile models had been well received, especially the smaller cars emphasizing fuel economy. These directors felt the outlook for auto sales was favorable, at least through mid-1976. According to a number of respondents, there has been no significant change over the past month in business plans for plant and equipment outlays, with caution remaining the prevailing attitude. One director, however, saw evidence of some pickup in longer-range capital investment planning.
Regarding inventories, most respondents agreed that there now is generally very little evidence of excessive inventories, that most inventory liquidation is completed or nearing that point, and that whatever additional adjustments are still needed should be completed by mid-1976. The chairman of a large department store chain stated that textile inventories were low and reported that his firm recently had difficulties in obtaining some of the more popular retail items. There were reports, however, of still-excessive inventories in some sectors, including some basic metals, electric machinery, lumber and construction items, tires, and console televisions.