The views expressed by Second District directors and other business leaders who were contacted recently in general reflected the nationwide slowdown in business activity. Department store sales have been relatively sluggish for this time of year. Business inventory policies have become significantly more cautious, with some instances of outright liquidation reported. Shortages of goods and materials have reportedly eased substantially. Despite the rise in overall unemployment, however, shortages of skilled workers persist.

Regarding consumer spending, the Buffalo Branch directors on balance felt that the sharp decline in auto sales had not been paralleled in their area by a similar fall in the sale of other major consumer items. Nevertheless, these directors generally agreed that retail sales of nonautomotive durable goods had weakened. Among other respondents, the president of a high quality New York City department store reported that his firm's sales had declined in November, which is usually a good month, and while he expected some improvement in December, he looked for Christmas sales to be only a little better than last year in dollar terms. Similar sentiments were expressed by a senior official of a large New York City department store with branches in the suburbs, who also expressed concern over the retail sales outlook over the coming months. Similarly, a survey of New York City department stores by a local newspaper revealed that November sales at many of these stores had undergone their worst year-to-year decline in four years. Business, however, has apparently picked up with the advent of the Christmas season, with observers reporting heavy crowds and good business. As noted by several respondents, however, it appears to be a "bargain hunters' market," with heavy promotion and with many stores holding at this time the usual post-Christmas clearance sales, of both soft and hard goods. Similarly, many supermarkets have been holding special sales, and running advertisements offering discount coupons for selected items.

Against the background of relatively weak consumer demand, there were indications of a re-evaluation of inventory policies. The Buffalo Branch directors thus agreed that both retail and manufacturing firms have been attempting to adjust inventory positions downward, not only because of the weak retail sales picture, but also because of the easing of commodity prices and the high cost of financing inventories. The senior official of a large Buffalo department store reported that his firm had reduced its "on-hand" inventory and future commitments of apparel about 20 per cent below last year's level, a move he felt was not unusual for the retail trade industry. Similarly, the two New York City retailers mentioned above reported that their firms were attempting to maintain a "lean" inventory position. A senior official of a nationwide metal processing firm reported his firm was no longer able to sell all it produced, a development he felt indicated that the firm's customers were drawing down on their existing inventories. The chairman of a conglomerate stated his firm was liquidating inventories, and would continue to do so. It was noted, however, that while inventories might be too high in some sectors, a number of items such as heavy machinery, electrical equipment and metal casing still required long order lead times.

District construction activity, particularly in the New York City area, remains at a low ebb, although the outlook has brightened somewhat over the past month. A survey by a trade association indicates that New York state savings banks experienced moderate net deposits inflows in November following seven consecutive months of net outflows. Several thrift institution officials in New York have suggested, however, that these funds would not flow immediately into the mortgage market but would be used initially to rebuild liquidity positions.

The nationwide advance in the unemployment rate was reflected in the reports of several respondents. Thus, the two New York City retailers mentioned above stated their firms were attempting to trim personnel as well as other costs, and the chairman of the conglomerate reported his firm was cutting down its sales force. The Buffalo directors, however, felt that with the exception of layoffs in the automotive industry, employment in general appeared to be holding up well in the upstate New York region and that the supply of skilled labor remained tight. In their views, there appeared to be no evidence as yet of major layoffs of managerial and professional employees. The directors were, however, concerned that if the economy continues to decline, layoffs in the managerial and professional ranks may well occur.