March 10, 1976
The pace of the nationwide economic recovery remains strong, indeed may be gathering momentum, according to Second District directors and other business leaders who were contacted recently. The improvement in consumer confidence that emerged toward the year-end continued unabated during the past month; business inventories by and large are in line with sales and in some instances on the low side; while the outlook for business capital spending has begun to brighten. The economic upswing in this District, however, has lagged behind that in the nation generally, as reflected in the relatively high level of unemployment.
Regarding consumer spending, the president of a large nationwide chain of department stores reported that his firm's general merchandise sales were quite strong in February and were substantially above last year's depressed levels. He said he was "encouraged" by the continued strength in consumer spending thus far this year, coming as it did on the heels of a very good Christmas season. A senior official of a large consumer goods-oriented conglomerate expected further improvements in the demand for certain lines of home furnishings and for color T.V. sets, and reported a strengthening in the firm's car rental business. A financial economist felt that a strong improvement in consumer confidence was underway, citing as evidence the recent shift in the demand for cars from small to larger vehicles. Comments regarding retail sales developments in the Second District, however, were somewhat more restrained. A senior official of a large Buffalo department store reported that retail sales in that city had been somewhat sluggish during the past month, in large part because of bad weather. He felt reasonably optimistic, however, that sales during the spring season would "rebound sharply" from the depressed levels of a year ago. Similarly, a banker noted that while auto sales in the Buffalo metropolitan area were still lagging, stronger sales were being enjoyed by dealers in other areas of the country. This observer saw developing evidence of a shift in consumer attitudes from caution to optimism. The president of an upstate bank reported good retail sales in his area over the presidential holidays, while the president of a Buffalo suburban bank indicated that sales in the Buffalo suburbs were stronger than in the city, with local merchants expecting further improvements. In New York City, February retail sales by large department stores, paced by sales of apparel, topped year-ago levels by 4.5 percent, as against 3.5 percent in January and a decline of 4.2 percent in February 1975. Suburban stores also put in a stronger performance than City stores, with retail sales for the entire metropolitan area rising by 7 percent.
There were further reports that business inventories in general have now been brought down to—and in some instances below—desired levels. Among others, the senior official of the conglomerate mentioned above noted that following a big adjustment of inventories in 1975, his firm's stocks were now generally well aligned with sales. The president of a New York City area bank felt business inventories were "low", while the chain store executive indicated that retail inventories were fully under control. Another observer stated that on balance business inventories had been reduced to the point where businessmen's attempts to restock could be expected.
Turning to the outlook for business plant and investment outlays, the Buffalo Branch directors agreed that while, at this juncture, businessmen continue to make capital outlay decisions cautiously, evidence of a more optimistic approach was emerging. Senior officials of several nonfinancial concerns stated that while their firms currently were planning little change in the level of their capital outlays for 1976 as compared to 1975, no further decline was contemplated for this year. The president of the retail chain felt that new store expansion will continue in the retail sales industry, although the major emphasis will remain focused on increasing the productivity of existing facilities. The president of multinational oil corporation observed that while, as yet, he saw no change in business attitudes toward investments in plant and equipment, he expected the tempo of capital outlays to quicken hand in hand with a continued improvement in business conditions. A financial economist opined that, against the background of the strong state of consumer spending, the outlook for business outlays for plant and equipment had brightened substantially in recent weeks. He reported revising upward his earlier projections of no real growth in capital spending for 1976, and now expected such spending to gather momentum in the third quarter and, especially, in the fourth quarter.
The comparatively lagging state of the District economy was most clearly evidenced by the generally poor employment picture. In New York City, the unemployment rate (not seasonally adjusted) rose from 11.5 percent in December to 12.2 percent in January, the highest level since World War II. The rise for New York State was slightly greater, from 10.3 percent to 11.1 percent, the highest level since the Depression. Against this background, concern was expressed that the state economy would slip further behind the national economy unless more favorable tax, environmental, and regulatory policies were pursued by the State. Several respondents in the Buffalo area, where that city's unemployment rate is the highest in the State, also cited obsolete plants and equipment, heavy tax burdens, high labor costs, and shifting markets as contributing to the continued closing or relocation from the Buffalo area of plants and outlets. Conditions remain even more depressed in Puerto Rico, where the unemployment rate is reported to have risen from 19.9 percent in December to 21.9 percent in January.
The demand for business loans remains sluggish according to most respondents expressing a view on the subject, primarily because of the currently high levels of corporate liquidity. Several respondents, however, expected such demand to rise in coming months as the economic upswing gathers momentum. Moreover, several upstate bankers reported that while business loan demand remained flat in their area, the demand for mortgage and consumer loans had intensified.