October 11, 1978
Business activity continued to advance in September at a moderate pace, according to recent comments of directors and other business leaders. Retail sales turned in a respectable performance despite the newspaper strike, and retailers seem to be guardedly optimistic about their prospects for the rest of the year. Elsewhere in the regional economy, business activity appears to be advancing nicely. While most respondents appear satisfied with current and near-term sales, businessmen are still keeping a tight rein on inventories. Indeed, in some cases, inventories reportedly are so lean that they have resulted in some stretching of delivery schedules. Looking ahead, there is an emerging consensus among respondents that the pace of business activity will slow down next year. Capital spending is expected to hold up while consumers become more tight-fisted. The recent firming in business loan demand at the New York City banks is also expected to continue.
Retail sales in the Second District chalked up healthy gains in September. Merchants in New York City reported that their sales were running slightly ahead of last year's pace. They felt that sales would have been even higher had it not been for the city's ongoing newspaper strike. Especially hard .hit by the strike have been the sales of big-ticket durable goods, since they depend more heavily on advertised sales-promotions than do other consumer goods. Also, stores in Manhattan have been the ones most affected by the strike. Elsewhere in the Second District, and especially in New Jersey, retail sales have been fairly strong across a broad line of goods. Neither retailers nor bankers professed to be worried about the much-publicized buildup of consumers' indebtedness. Almost without exception, the delinquency rates on consumer loans are reportedly remaining at comfortably low levels; and most consumer creditors feel that their customers are currently managing their debts quite well.
Outside of retailing, business activity appears to be advancing at a
moderately brisk pace. Most businessmen who were contacted echoed
the assessment of one upstate manufacturer of machine tools that
business was "good" and there were "...no clouds hanging over the
economy—except for inflation." Many businessmen feel that what is
needed in the fight against inflation is a comprehensive and
well-coordinated program. At the same time, they are also very disturbed
about the proliferation of government rules and regulations, which
result in nonproductive costs and delays. In any event, while there
are no apparent shortages in materials, some producers appear to be
nearing the limits of capacity. Nevertheless, virtually none of the
directors or businessmen contacted anticipated a material change in
the pace of capital spending. For example, one upstate manufacturer
indicated that his firm was now bumping up against capacity ceilings
for both brass and aluminum mill products, but does not plan to
expand plant and equipment outlays at this time. When asked about
the economic outlook for the next year and a half, most respondents
foresee a slowdown in the rate of economic growth for the first half
of 1979—but not an outright recession. As a rule, this projected
slowdown is seen as the result of belt-tightening by consumers, with
little attendant change in the rate of capital spending.
Business loan demand in the Second District is expected to retain its recent strength according to a survey of loan officers and economists at major New York commercial banks. The respondents were generally optimistic concerning the near-term business loan outlook despite rises in interest rates and competition from U. S. offices of foreign banks. All respondents confirmed receiving "spillover" loan demand from regional banks which primarily took the form of loan participations. There was disagreement to what extent these referrals reflect the increasingly "loaned up" positions on the part of the regionals or the size of individual loans that sometimes are too large for a single regional bank to handle for either legal or policy reasons. In any case, respondents assigned varying degrees of importance to spillover loans in boosting New York loan demand.
The majority of respondents gave optimistic forecasts of loan growth
through the first half of 1979. All those questioned said that
increases in interest rates have not yet affected loan demand.
Everyone acknowledged loan competition by
U.S. agencies and
branches of foreign banks. However, some uncertainty was voiced
concerning how much of this business was with traditional customers
and whether the loans to nontraditional customers were similar in
quality to those loans usually made to large domestic firms.