April 6, 1971
The opinions expressed by the Directors of this Bank and the Buffalo branch and other business leaders in general continued to point to an uncertain economic outlook. On balance, the assessment was: a still cautious consumer attitude; a somewhat less optimistic residential construction picture; little or no improvement in the unemployment situation; and relatively uninspiring prospects for 1971 corporate profits. Sentiments were mixed with respect to the likely volume of further corporate borrowing in the bond market.
In view of most of the Directors and of the retailers that were contacted, the long awaited rebound in consumer spending has not as yet materialized. Indeed, it was generally believed that no real pickup in consumer spending could be expected as long as consumer confidence continued to be adversely affected by the unemployment situation. Several of the respondents, however, felt that given the current high rates of individual savings, a change in consumer mood could well trigger a sharp increase in such outlays.
With respect to residential housing construction the picture painted by the respondents was somewhat less rosy than it had been in earlier months. To be sure, the consensus was that there still remained a shortage of housing for lower and middle income families, and that mortgage money had become more readily available at lower rates.
On the other hand, it was felt that to a large extent the demand for housing was being met by multiple housing units rather than by single family units, with several of the Directors expressing the opinion that the high cost of construction and the increase in property taxes acted as stronger deterrents to single home purchases than the current level of mortgage rates.
Similarly, the Directors in general were less than sanguine regarding the employment situation. Two of the Directors felt the employment picture had strengthened somewhat in the Buffalo area as a result of the resumption of activity at plants providing parts for the automobile industry and increased employment in the steel industry due to strike hedging inventory accumulation. However, the Chairman of the Board of a large New York City bank reported that layoffs were continuing in the airlines, railroad and other industries, while the vice president of the largest firm in Rochester saw no sign of strengthening of the employment picture in his industry. Moreover, the President of a large department store in that city reported that more workers were being laid off "without publicity," and that unemployment was rising. Most of the other respondents expressing an opinion on the subject either saw no improvement or a further weakening in the unemployment picture.
Sentiments regarding the outlook for corporate profits in 1971 also were not particularly optimistic. The Buffalo branch Directors all felt that 1971 profits would be at or above 1970 levels, but well below those of 1969. The Chairman of the large New York City bank regarded the outlook for corporate profits in 1971 as "not too bright," another Director expected 1971 profits to be "flat," while some Directors felt that profits would be lower than in 1970.
Opinions were mixed regarding the prospects for a let-up in the volume of corporate borrowing in the bond market in the near future. The Directors of the Buffalo branch unanimously felt that corporations would continue to tap that market—as well as the commercial paper market—to meet their credit needs, with the paying off of commercial loans continuing at a substantial rate. A Director of the New York Bank, on the other hand, noted that while SEC registrations for corporation bond market borrowings were still heavy in volume, they were lower than a few months ago, and he believed such borrowings would level out. Similarly, the Chairman of the large New York City bank felt that corporate bond market borrowing would not continue at its current pace for very long.