September 15, 1976
Scattered signs of pickup in the pace of business activity in the Second District were reported by directors and businessmen who were contacted recently. In early September, there appears to have been a substantial rebound in New York City's retail sales. The strength of this improvement was so pronounced that merchants expected its momentum to carry through the remainder of the month. Other sectors of the region's economy appear much less buoyant and continue to lag behind the nation's recovery. In the view of respondents, inventory investment appears unlikely to be stepped up significantly; and while capital spending is increasing, it has gathered little momentum in this District. The financial scene reflects these developments, with loan demand showing few signs of reviving.
Retail sales in and around New York City appear to have gained substantial momentum in recent weeks. Executives of several leading department stores reported a surge in consumer buying activity that began with the Labor Day weekend. One department store official characterized sales as "tremendous," and other respondents felt that sales gains were substantial and well above typical holiday and back-to-school buying. The pickup was large enough that a vice president of a national retailer observed that New York sales, which had been lagging the rest of the nation, had now caught up to the nation. The pickup in buying cut across all product lines, but smaller kitchen and personal care appliances were pointed to as leading the advance in one department store.
In the view of at least some merchants, Sunday openings have been an important factor in adding further impetus to the recovery in consumer buying. Major department stores in New York City and the metropolitan area last month began to open their doors on Sundays, and Sunday openings appear to be gaining acceptance among retailers. Most retailers were convinced that Sunday hours have added substantially to total sales rather than merely redistributing daily sales within the week. In addition to providing a shopping day to those who work on Saturday, merchants noted that heads of households were more likely to shop on Sunday, thus increasing the likelihood of big-ticket or credit buying. Whatever the cause of the acceleration in consumer activity, most retailers expected the momentum to carry through the month.
Directors of the Buffalo Branch were less sure of the upturn in consumer spending and were generally gloomy over prospects of the fall selling season. The reluctance of consumers to spend was attributed to a lack of sufficient confidence as well as continued concern about job security. The president of a Buffalo department store chain reported August sales were below a year ago; however, at the same time, the chief executive of a major Rochester retail firm stated that conditions had improved.
With respect to the outlook for business fixed investment spending, Second District directors reported little evidence of a step-up in capital spending plans. The chairman of a multinational oil company observed that the percentage increase in petroleum industry spending would exceed the rate of price increases. One executive in the electrical construction business reported a shift from governmental to private spending as limited evidence of a revival of capital spending plans in Western New York.
Capital goods production in the District continues to lag, however. Most producers report some pickup in new orders, but business remains below their earlier expectations. The corporate treasurer of an industrial machinery producer termed the overall recovery of new orders "spotty." One machinery equipment manufacturer felt that part of the flatness of his order book was due to buyers holding back orders until after the September machinery show in Chicago. New orders at a tractor and crane manufacturer had edged up slightly since early summer, but the backlog at this firm has been almost completely eroded. A major steel maker located in Western New York reported that demand for structural steel continued to languish. He explained that the operating rate of his firm's upstate plant had held near the company's average due to the strong demand for flat-rolled products. While some of the sluggishness in capital goods production in the region is due to the sluggish recovery in national business spending, a bank economist emphasized the maturity of the region in this connection. As a result, this analyst felt that the region's capital goods industries could be expected to lag behind the national recovery in investment goods demand.
Business inventories by and large appeared to be in relatively good balance with sales. Most of our directors viewed the early summer increases in inventories largely as the result of weaker than expected sales, but none felt that the increases were excessive. Buffalo directors observed that overall inventory levels were somewhat low in relation to sales and expected moderate stock building over the balance of the year. Retail respondents appeared to be relatively satisfied with their sales-inventory balance but reiterated that tight controls were being held on inventories. One electrical machinery manufacturer, however, reported that inventories were high and that his firm was in the process of working them down.
Second District bankers saw little evidence of a recovery in business loan demand as yet in New York City, although some recovery was observed in some outlying areas. For example, one director noted signs of a sustained recovery in business loan demand in the Binghamton area. Most of the Second District bankers contacted outside of New York City expected loan demand to strengthen during the next several months, but a majority of the New York City bankers foresaw flat loan demand for some time to come.