November 9, 1977
Activity in the Second District continues to be mixed and lagging behind that of the rest of the nation, according to recent comments of directors and other business leaders. On the national outlook, respondents were generally encouraged by prospects of continued economic expansion, although many appeared concerned that the uncertainties of prospective tax and energy legislation will inhibit capital spending. Within the district, retail activity posted a moderate gain in October, but inventory levels remained on the high side. Harvest losses caused by heavy rains in the Western region of the district are expected to exceed $150 million. Containerized port activity remains at a standstill as the dock strike enters its second month.
Department store sales in October apparently met merchants' expectations. Several leading retailers reported that sales were very strong during the first half of the month but subsequently waned. For the most part, retailing executives attributed the slackening in activity to unseasonably warm weather, which curtailed purchases of outerwear. One leading merchant suggested that part of the slowdown could be the lack of a spillover of pre-Election Day sales activity into October. Several respondents indicated that sales gains lagged the rest of the nation. Despite the softening, the department store executives looked to the approaching Christmas season with "cautious optimism."
Outside of department stores, consumer spending on new cars appeared more robust, although here too the pace appeared to lag the nation. A director of a major automobile finance company held a sanguine assessment of automobile sales, professing no concern over consumer indebtedness or delinquency rates. Several major auto dealers reported that sales in October were on target but lagging national sales. The higher prices of new models apparently met with little sales resistance.
Although some inventory imbalances were reported, they did not appear to be widespread nor unduly burdensome. In the retail sector, the slowdown in sales did apparently lead to some buildup in inventories. One retailing chain executive attributed his firm' s increase in stocks to over-ordering by store managers. None of the retailers contacted felt their stocks to be seriously out of line with plans, especially in view of the approaching Christmas season. In the industrial sector, a chemical executive expected the industry's inventory excesses to be worked off by the end of the year. For the most part, respondents felt that businesses' tight inventory policies prevented any serious or widespread involuntary accumulation.
Pervasive uncertainty over government policies was frequently blamed for inhibiting capital spending by business. Several directors reported that firms were awaiting clarification of the outlook on tax legislation before framing their capital spending plans. More generally, uncertainty surrounding a broad range of government policies was cited by the chairman of a major New York City bank. One director voiced apprehension over energy and environmental policies as retarding plant and equipment outlays. The president of a major chemical firm mentioned the uncertainty associated with the proposed social security legislation. The president of a major New Jersey bank felt that local business in his area seemed to be more caught up with local environmental and tax issues than with national policies. In a similar vein, the Buffalo directors expressed concern over the high tax burdens in New York State that tend to limit spending on capital improvements of existing plants. On a positive note, one Buffalo director reported some acceleration in capital spending plans among small- to medium-sized firms due to special tax incentives offered by the State for job-creating capital infusions.
There is a good deal of concern over the farm crop in central and western New York State. Heavy rain from the middle of September through October seriously damaged the crops and left the ground too wet to harvest surviving crops by the customary mechanical means. Dairy farmers also are suffering as they are unable to harvest the feed for their herds. Crop damage in the thirty-five upstate counties is expected to exceed $150 million.
Another negative factor weighing on the regional economy is the limited dock strike, which appears to be having an increasing impact as it enters its second month. According to an executive of a leading maritime firm, there are currently 16 to 20 fully loaded ships tied up in the Port of New York. There appears little hope for an immediate settlement though there are some indications that one many be reached before Thanksgiving. The lengthy strike is expected to produce serious difficulties for retailers who offer significant quantities of imported merchandise for Christmas sale and could spark some upward price pressures. The continuation of the strike also has serious repercussions on Puerto Rico because of the commonwealth's heavy reliance on imported goods.