June 2, 1971
The overall picture that emerges from the answers to the questions raised with the directors of this Bank and of the Buffalo Branch and with other business leaders is one of cautious optimism regarding the economic outlook. Consumer spending was generally reported to be rising—albeit moderately—while there were no indications of further cutbacks in capital outlays. A good number of the respondents pointed to weak spots—notably, the adverse effect of high costs on residential construction and a continued unsatisfactory unemployment situation.
With respect to consumer spending, most of the directors indicated that such spending has continued on the upswing during the past month, although the majority felt the rise was only moderate. For example, the chairman of the board of a Rochester department store characterized the upward trend in retail sales as "slight," while it was the consensus of the Buffalo Branch directors that, although they noted a "slight acceleration" in consumer spending was occurring, there was no "clear signal" of a dramatic change in consumer attitudes.
Most of the respondents expressing an opinion on residential construction looked for a continued increase in activity in this sector. Virtually all of these respondents felt that home building activity was inhibited by the high price of houses, rather than by relatively high mortgage rates or a lack of mortgage funds. A typical reaction to this question was that of the chairman of the board of a large manufacturing concern who stated that "he believed that inflated prices were the limiting factor in the home building area. Similar sentiments were expressed by all the directors of the Buffalo Branch.
Turning to expenditures for plant and equipment, the continued lack of strength in this area was attributed to unused capacity and the accompanying decline in the profitability of recent capital investment, which have led corporations to be very conservative in their capital spending plans. However, there were no indications of further cutbacks in such expenditures. The president of a large oil corporation felt that oil companies and utilities must continue to expand plants to meet demand and that as a matter of fact these industries are ''shifting to a scarcity'' theme because they cannot meet the nation's energy needs. The feeling was general that the relatively high interest rates in the corporate bond market has little or no effect in limiting capital spending.
In general, the unemployment situation was described as unsatisfactory. The Buffalo Branch directors saw no improvement and indicated that local labor markets continued to be sluggish. The chairman of the Rochester department store stated that unemployment in that city was still rising. The president of an Ithaca bank, however, reported that unemployment in his area, at about 5 percent, was better than the average and had leveled off.