Beige Book Report: New York
August 12, 1970
Sentiment was mixed among Federal Reserve Bank Directors regarding the business outlook and inflationary pressures. Consumer spending was assessed by leading retail merchants as showing few signs of real strength.
The chairman of a large manufacturing corporation believes that anxiety among businessmen has moderated somewhat, and does not think plant and equipment spending will be depressed for very long. A banker from upstate New York reported that people in his locality seem more optimistic about the business outlook than two or three months ago. He noted they are not hesitating to request bank credit, and remarked that a number of national business firms operating in his area are making strong efforts to hold their workers through such techniques as spacing vacations.
The upstate banker thinks "the worst is over" so far as a liquidity crisis is concerned. However, the head of a big merchandising enterprise reported that there is considerable concern in the Rochester area about liquidity problems, and that more business failures are expected in the coming months. He noted that many jobbers, in many fields, have informed foreign manufacturers they are unable to pay for goods ordered earlier for future delivery. The financial situation of retailers is also a source of worry to domestic suppliers.
Retailers belittled the significance of the substantial July increases reported in the press for some retail chains. They commented that most of the reported strength reflected consumer response to very intensive "off-price" promotions, and that much of the big jump in year-to-year figures resulted from the opening of many new stores. Lower-priced stores, catalogue business, and bargain basements are continuing to do comparatively well. An example was cited of a new store that opened around the end of July with a basement division occupying 15 per cent of the area; this would normally have been expected to account for 10-15 per cent of total sales but actually was accounting for 35 per cent. Style goods are "deader than a church mouse," with drastic fashion changes considered a factor in the sorry situation. Sales of television sets and large appliances are also very slow. One nationwide retailer reported that the only geographic areas where business is not poor are New England and "stable agricultural areas" such as Idaho and South Dakota.
The representative of a retail organization that had released July figures showing a very large year-to-year increase commented that his organization regarded consumer confidence as being at an all-time low and was expecting this confidence to drop lower yet. He and other retailers mentioned lay-offs as well as depressing noneconomic news as factors influencing consumer confidence and producing the mental attitude that is leading to a higher savings rate. Although the retailers have seen no beneficial effects on sales from the ending of the tax surcharge and the increase in Social Security payments, two of them made special mention of what they regard as a slight improvement in the collection situation.
As for expectations concerning inflation, one Federal Reserve Bank Director questioned how inflationary pressures could be slowed if wages are rising at their "current rates." Another Director suggested there has been some improvement in the war against inflation "if you close your eyes to some of these recent wage settlements." A third, from upstate New York, noted that despite the very low unemployment rate in his area, two major labor contracts had been settled recently without strikes and with "reasonable" wage increases, and declared he had detected a definite trend "among the public" toward more optimism regarding the battle against inflation.