November 10, 1976
Conditions in the Second District continue to improve moderately, according to District directors and other business leaders. Department store sales in New York City have been strong for the past two months, and consumer spending elsewhere in the District also appears to have gained momentum. At the same time, there are also signs that capital goods production in the District may now be picking up. On the outlook for the national economy, the business leaders contacted have not altered in the face of the recent economic slowdown their view of a moderate but steady expansion over the next year. With only a few exceptions, inventories were judged in good balance with sales. Less encouragingly, many business leaders voiced concern that the Ford Motor Company settlement would tend to strengthen somewhat labor demands in future negotiations.
Consumer spending in New York, both in the City and upstate, appears to have strengthened and merchants expect a strong Christmas season. According to leading City retailers, since sales turned up around Labor Day they subsequently continued to post sizable gains. While the turnaround coincided with the movement toward Sunday openings, most retailers feel it is still too early to estimate the impact of such openings. Several department store executives attributed part of the October strength to unseasonably cold weather, which sparked purchases of outer wear. The vice president of an association of retailers agreed that soft goods were now selling better. Reports from upstate New York also indicate that consumer spending has gained considerably. The head of a leading department store in Buffalo said results for October were the best so far this year. A banker director noted a considerable pickup in consumer borrowing which he attributed to automobile purchases. In this strengthening environment, most retailers are expecting a healthy Christmas buying season that would carry over into the first half of 1977.
Concerning the general outlook for the national economy, the consensus view was that the recent slowdown in growth would not adversely affect the pace of economic activity over the next several quarters. Indeed, one director pointed out that the rate of growth in final sales had not slowed down at all. He predicted moderately faster growth over the winter and spring, followed by some slowing in the second half of 1977. Directors, business leaders, and economists alike felt that despite the recent slowdown the near-term outlook remained one of moderate but steady expansion.
The recent slowdown had not created any substantial inventory imbalances and, overall, inventories were in good shape in the unanimous view of respondents. One isolated sector where inventory imbalances were thought to exist was in the metals industries, especially steel and copper, which were frequently mentioned as being top-heavy. One director, however, did feel that the situation in steel had largely been corrected. The chief economist for a diversified company thought that chemical inventories were high while an executive of a chemical concern considered them to be comfortable.
One effect of the economic slowdown has been to allay fears of near-term shortages and capacity constraints. In July a senior official in the paper industry predicted that the industry would face capacity problems by mid-1977; but in view of current developments, this forecast has been revised so that capacity constraints are not expected to develop before 1978. A chemicals executive labeled the capacity situation in his industry as good, stating that through careful planning bottlenecks had been eliminated. A senior economist of a textile company spoke of considerable excess capacity while a metals executive predicted that shortages would not occur for a year or two. Few business leaders reported changes in planned capital spending, but many complained that the effects of environmental and governmental regulation had severely constrained the growth of capacity. Uncertainties over proposed environmental legislation and concern over the possible imposition of price controls were cited by several respondents as retarding investment spending.
Capital goods production in the District continues to lag, but there is some evidence of a turnaround. New orders for capital goods have apparently picked up for a number of companies. One officer reported a tremendous upswing in new orders, primarily in new bookings from the plastics industry. The production manager at another plant commented that new orders for sophisticated machinery had been good for some time and now orders for less sophisticated machinery are picking up. According to the vice president of an electrical machinery company, new orders have been somewhat stronger in recent months and moderate growth is expected in the near future. The vice president of a forge company reported that, while current capital spending is slow, activity is expected to strengthen in early 1977.
A majority of directors and business leaders seemed to feel that the Ford settlement would lead workers to strengthen their demands, but few expected the impact to be substantial. Most directors thought the settlement would lead to demands for higher wages, reduced hours, or a guaranteed annual wage. A number of business leaders agreed that the settlement was likely to encourage other workers to make more expensive demands, with one businessman stating that his company's upcoming negotiations would probably be affected. On the other hand, few thought that the impact economy-wide would be substantial because few other workers have the same bargaining strength as the automobile workers. In one director s view, the Ford settlement was tailored to the interests of a particular union and would not, therefore, cause other workers to alter their demands. An analyst in a brokerage house agreed that other workers were unlikely to accelerate their demands as a result of the settlement because in large measure the Ford contract was in line with others negotiated this year. Despite this general consensus, the directors of the Buffalo branch cautioned that the current United Parcel Service strike could signal a general strengthening of union demands over the next year.