December 13, 1978
Economic activity in the Second District appears to have expanded at a moderate pace in November and early December, according to the recent comments of Directors and other business leaders. Retailers profess to be more or less satisfied with the way their Christmas sales are shaping up, and they also report that their inventories are well in control. Elsewhere in the regional economy, business activity appears to be moving along without any hitches. Most businessmen continue to keep a very tight rein on their inventories in anticipation of a slowing in the national rate of economic advance. Meanwhile, no one seems very optimistic about the prospective success of the recent voluntary wage and price guidelines. Senior lending officers at the major New York City banks generally expect stronger business loan demand in the near term.
After a weak showing in early November, retail sales in the Second District apparently strengthened substantially in recent weeks. A spokesman for a leading national chain of department stores noted that catalogue sales, which are an early indication of the Christmas selling season, have been brisk. Early in the holiday season, however, retail sales were sluggish. In New York City, retailers had hoped for a rebound in consumer spending with the end of the newspaper strike in early November. Initially, however, retailing activity remained slow. One director attributed at least part of the sluggishness to warmer weather which may have dampened consumer enthusiasm for holiday-season shopping. After Thanksgiving, retail sales in the city have rebounded more than seasonally. A similar revival occurred in the upstate region, according to the Directors of the Buffalo Branch. Merchants are now looking forward to a prosperous Christmas selling season. Retailers are using heavy promotional campaigns to bolster sales, but there is little evidence of unusual discounting. Evidently, since merchants have maintained tight controls on their inventories, there are few excess stocks of merchandise to spark sharp price reductions.
Business activity outside of retailing has lately been fairly robust. Although some businessmen are concerned about the economic outlook for next year, none of those contacted indicated they were dissatisfied with their company's current volume of business. Indeed, one large corporation in the fabricated metals industry reports that it is operating at capacity. The demand for petroleum products is also strong, and the oil industry is currently operating close to capacity. Sales have also been strong for the photographic equipment industry. Two construction firms which deal in industrial and commercial building and renovation report increases in activity, led by a revival in activity in Manhattan. In contrast, residential home building in New York State remains moribund. The upstate directors noted that there was a heavy backlog of mortgage applications in the Buffalo and Rochester areas, which were awaiting the increase in the State's usury ceiling to 9 1/2 percent. At least one banking director, however, expressed some doubt as to whether this higher mortgage rate would alter the current situation since it was still below current market rates.
On the financial scene, senior lending officers at the major New York City banks generally expect stronger business loan demand in the near term. Although the prime rate has risen considerably in recent months, almost all of the respondents report that they have not tightened either compensating balance requirements or standards of credit worthiness. Moreover, there generally has not been less willingness to accommodate either established or new business customers. However, most of the respondents are becoming increasingly hesitant to commit themselves to fixed-rate loans.