November 15, 1978
The expansion in business activity in the Second District apparently slowed in October, judging from recent comments of directors and business leaders. On the national outlook, there is growing concern and anxiety about the stubbornly high rate of inflation and the recent sharp run-up in interest rates. Respondents were uncertain as to how successful the new wage and price guidelines would be in stemming inflation, with a few even reporting some companies raising prices apparently in anticipation of an eventual return to mandatory price controls. At the same time, many view the program designed to shore up the value of the U.S. dollar in the foreign exchange markets as appreciably increasing the chances of a recession next year. Against this national economic outlook, apprehensions have been voiced about the business prospects for the regional economy. On the financial scene, NOW accounts have been introduced in New York so that it is unlikely that many automatic transfer accounts will be offered.
Retail sales turned in a mixed performance in the district. While retail sales were fairly strong in western New York, the autumn buying season in upstate New York fell below the expectations of directors of the Buffalo branch.
As evidence of the mixed signals being emitted by consumers, some major department stores in New York City reported healthy gains, while others registered disappointment at the low level of October sales. The prolonged newspaper strike was blamed by several New York City merchants as contributing to the sluggishness in retail sales, but a few observers interpreted the slowing as evidence of an incipient weakness that may presage a retrenchment by consumers. Nonetheless, merchants are looking forward to the Christmas season, although the traditional seasonal optimism appears to have been dampened by this undercurrent of trepidation. Auto dealers in the Second District also reported a softening in consumer spending.
Outside of the consumer sector, the mood of business appears to be sober and cautious. A spokesman for an upstate manufacturer, whose comments were echoed by many manufacturers, reported that business was flat and was probably going to stay that way for a while. Another telling indicator is that the capital spending plans of companies in such diverse industries as chemicals, steel, paper, and prefabricated metals show no evidence of strengthening or have been even pared. An increasing number of businesses now seem to regard the prospect of a recession next year as a foregone conclusion. In this connection, the sharp rise in interest rates and the other moves taken to defend the U.S. dollar were judged to have appreciably increased the chances that there will be a recession.
Respondents were generally unenthusiastic about the probable success of the wage and price guidelines in slowing the rate of inflation. It was generally felt that while business management would do its part in holding price increases to the level sought by the president, unions were unlikely to cooperate. Indeed, the Buffalo directors thought that the anti-inflation program was misguided. It was their feeling that the government itself was contributing importantly to the current inflationary environment through a host of ways—e.g., the minimum wage, Social Security taxes, continued high deficit spending, onerous regulatory burdens, etc. At the same time, a number of businessmen indicated that they knew of instances where prices appeared to have been increased in anticipation of mandatory price controls. Still, the overall impression is that there is little, if any, real evidence of such increases, and the practice appears to be far from widespread.
The offering of automatic transfer service is not likely to become very widespread in New York state, according to a recent survey of Second District banks. Most New York banks contacted said they plan to offer NOW accounts instead. The recently enacted banking act authorized federally chartered financial institutions in New York state to offer NOW accounts, and this privilege was recently extended to state chartered institutions by the state banking authorities. Of the 30 New York banks surveyed, only four (two of which were New York City wholesale banks) said they did not plan to offer either ATS or NOW accounts. In contrast, all the New Jersey banks surveyed said they were already offering ATS. Banks with automatic transfer service estimated that about 60 percent of the balances came from demand deposits at the same bank with most of the remaining funds coming from savings deposits, also at the same bank.