Beige Book Report: New York
March 12, 1975
Second District directors and other business leaders who were contacted recently on balance took a rather dim view of the near-term economic outlook, but most expected a turnaround in business activity during the later part of 1975. The retail sales picture remained uninspiring, particularly in New York City. More encouraging was the reported significant reduction in retail inventories, and the improvement—albeit limited—in certain manufacturers' inventory positions. Comments regarding business capital outlays reflected a note of caution in that sector. There continued to be reports of a softening of prices of certain raw and semi-finished products and, at the retail level, of further price concessions, including a spreading of the "rebate" device. The District unemployment rate continues well above the nationwide average, although the most acute problems seem to be concentrated in New York City, Buffalo, and northern New Jersey.
None of the respondents commenting on the swiftness of the deterioration in the economy foresaw a bottomless downward spiral. Considerable uncertainty, however, surrounded the timing of the turnaround, with the respondents in general looking for a recovery to take place later than suggested by some official forecasts. Among others, the chairman of a large airline stated that, at this juncture, he saw no indications of a turnaround as yet. The chairman of a large metal producing firm expected the upswing to be delayed until the start of the fourth quarter, when he looked for an improvement in auto sales as new models were introduced. Among the Buffalo branch directors, those from the Buffalo area, which has been hit especially hard by the downswing, felt that it might well be year-end 1975 before the turnaround takes place. On the other hand, a director from the Rochester area, where business activity has remained relatively strong, expected the turnaround by summer or early fall. Among other respondents, the chairman of a diversified international chemical concern stated that the recession would be worse than had been generally expected, and the chairman of a conglomerate stated that he could not get enthusiastic until retail sales picked up, and would not predict when that would occur.
Regarding consumer spending, New York City department stores, following a poor January, had another poor month in February. Similar conditions prevailed in Buffalo. Sales elsewhere in New York State continued to perform somewhat better than in the State's two largest cities. An official of a trade association reported that while sales at some New York City stores had picked up somewhat, business at others had declined, and that on balance February sales at City department stores would be somewhat lower in dollar terms than in February 1975. On the brighter side, however, his impression was that there had been a slight improvement in recent days, a view also expressed by some retailers. Moreover, he reported that the merchants he has been in contact with were somewhat more optimistic than last month, and looked for an upturn as the spring season gets underway.
A number of reports indicate that further progress has been made toward reducing retail inventories, in good part reflecting significant cutbacks in merchants' purchases from their own suppliers. In this context, the chairman of a very large New York City-based department store chain with branches across the country stated that while his firm had been badly overstocked last November, it has now managed to significantly reduce its inventory position. He also felt this was true of the retail industry generally. Similarly, a senior official of another nationwide department store chain stated that as a result of an aggressive reduction program, his firms' inventories were now 20 percent below their level in the comparable period in 1974. At the manufacturing level, the chairman of a chemical firm reported that his firm had reduced inventories to desired levels, and the chairman of a health and cosmetics products manufacturer stated that his firm had no overstocking problem. Another observer noted that while there has been a general attempt by industry to reduce inventories, a decline in sales has partly frustrated such efforts in some cases.
A note of caution characterized comments on capital spending. A director stated that businesses were attempting to restore liquidity positions and as a result were scaling down large projects. One of the nationwide retail firm officials mentioned above reported that his firm was completing stores at shopping centers that were already on the way, but was putting "little new on the books". One of the metal producers reported that his firm had completed a new aluminum plant, but was not putting this plant "on stream" at this time because of the softening in the demand for aluminum. An airline official stated there were 100 to 250 too many jets available for the airline industry. (He further predicted that the airline industry would show "zero profits" in 1975.)
Regarding prices, the nationwide decline in wholesale prices was reflected in reports of price declines for a number of primary products, including copper, brass, fibers, and raw materials used in the health and cosmetics industry. At the retail level, there were further reports of price concessions in connection with promotional activity and of a spreading of the rebate device to such products as cameras, sewing machines, and home appliances. In the New York City area, rebates are being offered on purchases of condominiums and on leases of luxury apartments.
The District unemployment rate continues well above the national average, in large part reflecting the high jobless rates in New York City, northern New Jersey, and Buffalo. The unemployment rate for New York State rose to 9.3 percent in January. It was 10.6 percent in New York City, where many of the City's principal industries—such as dressmaking, printing, construction, and retail trade—are acutely feeling the downswing in economic activity. In Buffalo, the rate was up to 13.4 percent, reflecting the downturn in the auto, steel, and machinery industries.