July 14, 1976
The economic recovery in the Second District continues to lag behind that of the rest of the nation, but recent developments have not materially altered the assessment of District directors and business leaders who were recently questioned about the economic outlook. Merchants do not appear overly concerned by the softening of retail activity, which they regard as temporary, but they are generally following tight inventory policies. On the financial front, business loan demand continues to languish in New York City, although a few directors reported scattered evidence of a pickup outside of the city. Commercial banks in New York have begun to respond to the challenge of checking accounts at mutual savings banks by eliminating or lowering checking fees.
Consumer spending in this District remained sluggish overall in June, although there were mixed reports of an upturn. The president of a major pharmaceutical concern reported a slowdown in some consumer markets in May and June. The controller of a major New York City department store also reported that sales continued weak in June. In western New York state, the Buffalo directors found little indication of any significant increase in consumer spending except for automobile sales. On the other hand, a Rochester retailer found June's sales, though soft, stronger than May's. Many stores, in an effort to limit inventory accumulation, have begun to mark down merchandise prices earlier this year than usual. In this connection, a senior official of a nationwide chain specializing in apparel and other soft goods said his firm planned June and July markdowns that are greater than normal.
Beyond their cautious inventory policies, retailers do not appear overly concerned by the softening of sales activity and have not altered their fundamental assessment of the future. Respondents believe that consumer spending will pick up again in coming months, but do not expect an upsurge as strong as that experienced early in the year. Echoing this view, the president of the pharmaceutical firm discounted the downbeat findings of recent consumer confidence surveys, arguing that they have no predictive value but merely confirm current market conditions. In the view of Buffalo directors, consumer confidence remains favorable as inflation decelerates and real income rises.
Outside of the retail business sector, most other respondents did not appear concerned over inventories. The president of a large distributor of electric equipment said his company's inventories were "in great shape." The treasurer of a metal-fabricating company reported that his once massive inventory overhang had been eliminated and that overall inventories were now "just about at optimal levels." An economist for an oil company felt his firm's inventories were generally in a normal range, with gasoline stocks being built up in anticipation of future tightness.
On the outlook for wage pressures, directors of the Buffalo branch felt that demands for wage increases have moderated somewhat. The president of a large utility reported that his company is experiencing record low job turnover and felt that this may allow him to break out of the national pattern of pay increases. Respondents, however, remained wary of aggressive wage demands of unions. One director, who is associated with the automotive industry, felt that the relative moderation of wage demands in that industry was due to the fact that pressures for catch-up pay increases were largely behind us. An official of a nationwide retail chain termed the wage situation in his industry as "stable." With only a small fraction of his work force unionized, he felt that the abundance of unskilled workers eliminated economic pressures to raise wages.
Surveying the financial scene, business loan demand in New York City continues to languish and respondents do not see signs of a turnaround. However, the chairman of a major New York City bank indicated that there were signs of recovery in loan demand at some rural and regional banks outside of the central money markets. In New York State, mixed evidence on this point was offered by various directors. One reported loan demand was flat in central parts of the state, while another cited an incipient recovery in the Binghampton area.
While New York City loan demand remains sluggish, competition for demand deposits has developed as a result of mutual savings banks bidding for commercial bank customers. Recent legislation now permits mutual savings banks in New York State to issue non interest-bearing demand deposits. A trade association for these thrift institutions indicated that as of the end of June three-fourths of its membership (84 out of 118 members) were offering these accounts. In the few weeks that the accounts have been available, deposits have grown rapidly and already exceed $100 million. In response to this rapid growth and aggressive marketing by savings banks, commercial banks have begun to eliminate or substantially reduce checking charges.
While the regional recovery generally continues to lag the national economy, there were some encouraging developments in the District's employment situation. The New York State unemployment rate (not seasonally adjusted) declined 0.6 percentage points to 8.9 percent in May, the first time in 30 months that it was lower than a year earlier. In Buffalo, where joblessness has persistently been the worst in the District, the unemployment rate fell from a high of 12.1 percent in March to 10.4 percent in May. This is also well below its 11.5 percent rate of May 1975. After holding steady at 10.7 percent in March and April, the New York City unemployment rate fell to 10.1 percent. This improvement is somewhat illusory, however, since it was caused less by an increase in jobholders than by a reduction in the work force. Indeed, New York City's recovery from the recession has fallen further behind that of the nation. The city's unemployment rate in May was 3.4 percentage points higher than the national rate, while in January this difference was only 2.6 percentage points. Of the five downstate counties surrounding New York City, each registered improvement in the jobless rate, but only one had a rate below the national average.