October 11, 1977
Business activity across the Second District is somewhat mixed according to directors and other business leaders contacted recently. While the consumer sector appears to be relatively strong, inventory levels remain on the high side, and the outlook for capital spending is mixed with little indication of a significant step-up of planned plant and equipment outlays. Concerns over the prospective rate of recovery of the District's western region due to the large cutbacks by the steel industry appear to have been intensified by sizable harvest losses caused by adverse weather. On the financial front, the sluggishness in business loan demand persists.
Retail sales increased moderately in September in the wake of an exceptionally strong August gain. Several department store executives expressed satisfaction with the sales activity in the New York and New Jersey branches. Among product lines, both household furnishings and women's apparel appear to have maintained strength, although in the latter instance, some resistance to this season's higher prices was noted by several merchants. The controller of a major chain credited Sunday store openings with helping to improve sales activity in New York. He noted that since Sunday openings were legalized a year ago, these sales have accounted for an increasing proportion of total sales. In general, merchants as well as executives of other consumer-related businesses expected favorable sales developments in coming months. Based on strong inflow of orders, the chairman of a national manufacturer of photo equipment reported that the consumer sales outlook appeared good. Brightening sales prospects were also suggested by telephone and newspaper executives who reported strong pickups in retail advertising.
Area auto dealers reported good sales in September. A rebound in the used car market led the advance, apparently as fears over prospective energy legislation dissipated. New car sales were characterized as "strong," although several respondents expressed concern over the effect the higher prices on new models will have on sales in coming months.
Inventories remained on the high side. In the retail sector, most executives professed little concern over high levels of stocks, judging them not to be unreasonably out of line with sales prospects for the fall and Christmas seasons. Outside of retailing, respondents were generally less sanguine in assessing their inventory positions. A textiles executive expressed concern that excessive inventories were accumulating in his industry. Several respondents in the chemical and petrochemical industries reported higher-than-desired stocks. The treasurer of a major nonferrous metals company reported a similar backing up of inventories, although at least part of the stockpiling had been in anticipation of aluminum price increases.
Capital spending plans for 1978 remain mixed. While responses varied among industries and firms, several directors foresaw expenditures for next year to be on a level approximately equal to that in 1977. At one extreme, plant and equipment spending by the steel industry is being curtailed sharply. Capital spending by farmers in western New York State is also likely to be reduced because of the heavy crop losses they suffered due to the past month's unusually heavy rainfall. Several machine tool manufacturers related that as a consequence of weakness in new orders and bookings, they will limit their new capital investment. The president of one large chemical company reported that due to overcapacity his firm's spending would be shifted to maintenance and conservation rather than expansion, while the chairman of another chemical company felt the instability in the economy was undermining the growth of capital spending. Several other business leaders across New York State indicated that they had no plans to expand production facilities during the coming year. In addition to uncertainty over the outlook for demand, a leading apparel executive also cited the high cost of raising funds as a reason for lagging capital investment in his industry. At the other extreme, one major nonferrous metal fabrication firm has greatly increased its capital outlays in upstate New York due in part to substantial improvement in its cash position. The chairman of a major petroleum company also expected his industry to continue its relatively high rate of capital spending.
With few exceptions, business loan demand at Second District Banks has remained sluggish. Moreover, the leading bankers contacted did not expect any substantial pickup in the near term because of the strong liquidity position of potential borrowers. Several financial analysts attributed at least some of the weakness in loan demand at commercial banks to increased competition of commercial finance companies in servicing the credit needs of small- and medium-sized businesses. In other banking developments, upstate directors noted that individual savings show steady growth and that installment lending continues at a high level. And the president of a leading New Jersey bank reported that mortgage loan demand has risen sharply in his area.