Beige Book Report: New York
October 14, 1970
The overall impression gained from opinions expressed by Federal Reserve Bank directors and business leaders was one of a somewhat sluggish economic recovery, with an upward drift in unemployment. The assessment was: further cutbacks, on balance, in planned capital outlays; with one notable exception, indications that consumer spending was still restrained; and, continued relatively strong upward pressures on prices. The directors felt current System policy to be about right and felt that further easing would be inappropriate.
Most of the directors felt that the tendency to cut back on plant
and equipment spending is persisting. The
vice-president of the
largest corporation in Rochester indicated that his company's
spending program was influenced by a large project already underway,
and little could be done to cut back that project. However, he
reported hearing of instances where planned spending was being
deferred or cut back. Another director stated that while he had not
seen any evidence of cutbacks in general, he believed they were
occurring in certain special cases, notably the aerospace industry.
Responses were mixed among top officials of nationwide corporations
regarding their plant and equipment plans. The president of one of
the nation's largest steel companies expected his firm's 1971
outlays would be about the same as this year's, as against an
originally planned increase of 25 percent, with the reduction to be
implemented by deferments and "stretching out" rather than through
cancellations. A diversified manufacturing corporation has budgeted
a small increase in capital outlays for the next year, following
"severe" cuts last year. Conversely, a large corporation in the
financial services, aerospace and insurance fields has planned a
sizable cut in such expenditures for the coming year after
"abnormally high" outlays in the past two years. Several business
leaders stressed the increasing importance of environmental control
in their capital spending plans, and its adverse effect on
productivity gains.
The chairman of a Rochester department store characterized retail business in his area as "not too good." Consumers are not spending freely, partly as a result of higher unemployment. The president of a Buffalo bank noted that installment loans at his bank were at a somewhat lower level than last year. On the other hand, the president of an upstate bank reported a rise in such loans, particularly automobile paper. The chairman of a large medium-sized retail chain specializing in software was somewhat less optimistic than last month, when he had felt that consumer confidence had improved significantly and would soon be translated into increased retail sales. In the case of his firm, these hopes have not yet materialized. He still believed that "the corner had been turned", but that the recovery will be at a slower pace than he feels is generally expected. Among the factors he mentioned as currently inhibiting his own sales were the persisting—indeed intensified—confusion over fashion styles, and the warm weather for this time of the year. He also felt that the "ripples" of the General Motors strike were beginning to adversely affect sales—particularly in those areas where plants that were on strike, or laying off workers as a result of the strike, loomed large in the local economy. The one notable exception in this generally gloomy retail sales picture was provided by the president of a large New York City department store with several suburban branches. He reported that September had been a very good month for his firm and that business was "steadily improving on a broad front." The sale of hard goods, notably television sets, had picked up smartly, while in his view the confusion over fashion styles was being rapidly clarified, with a concomitant improvement in apparel sales. He expected sales during the coming Christmas season to reach a record high.
Most of the directors indicated that the somewhat less rapid rise in prices in recent months should probably be regarded as temporary. The chairman of the nationwide manufacturing concern noted that there were still some big price increases to come, for example, in the automobile industry. The president of an upstate bank observed that "if wages go up 8-10 percent per annum, how can higher prices be avoided?" Several other directors as well as other business leaders also commented on the continued upward pressures generated by higher labor costs. The Federal Reserve Bank directors, both at the head office and at the Buffalo branch, generally regarded current monetary policy as correct and felt that further easing at this time would be inappropriate.