Beige Book Report: New York
December 10, 1975
Consumer spending, notwithstanding its sluggishness in recent months, is expected to provide the principal near-term stimulus to the economy, according to the views expressed recently by Second District directors and other business leaders. Business capital spending remains lethargic, although a number of respondents felt the longer-term need for such outlays might well be building up. The respondents on balance looked for a continued modest improvement in residential construction. Loan demand was generally characterized as weak.
The retail trade industry continues to provide the brightest element in the economic outlook. The president of a large nationwide chain of department stores thus characterized the outlook for the Christmas buying season as "glowing." He reported that after a slow start in November, which he attributed to unfavorable weather conditions rather than to a lack of consumer confidence, nationwide retail sales had risen sharply in the recent past and that he was "very" optimistic regarding the prospects for the post-Christmas season. He stated that while retail sales in New York City were not doing as well as nationally, he felt that even there the outlook was relatively favorable. A survey by a local newspaper indicated that November sales by large New York City department stores were only 3.5 percent higher than during the comparable period a year ago, with merchants attributing this relatively poor performance to the adverse effect of the threat of a City default, the 11-percent unemployment rate in the City, the City's generally troubled economic conditions, as well as unseasonably warm weather through much of November. Sales by the suburban branches of these same stores, however, were substantially higher; and the combined sales of these stores and their branches were nearly 7 percent higher than in November 1974. The chairman of the City's largest department store reported that his firm's sales in the metropolitan area remained "strong" and was generally optimistic regarding the outlook over the coming months. New York City apparel manufacturers, moreover, reported a strong pickup in orders, associated not only with the Christmas season but also with the spring and Easter season. Observers reported the outlook for the Christmas buying season in Western New York to be favorable, citing a "healthy" consumer attitude toward spending, adequate savings, and an increase in real disposable income as contributing to this favorable outlook. One exception was the Buffalo area, where a retailer reported sales trends to be "spotty" and the outlook "not encouraging."
Regarding business capital spending, most respondents saw little evidence of a near-term pickup in that sector. Among others, the chairman of a multinational oil firm stated he had not noticed any change in the conservative attitude toward plant and equipment outlays in the petroleum industry, and the president of a nationwide retail firm reported that, in general, retailers continued to act cautiously toward the opening of new branches or the expansion of existing facilities. The president of a multinational nonferrous metal concern indicated that his firm's customers were planning only the absolutely essential capital expenditures. He felt that businessmen's generally conservative spending intentions were linked to the uncertainties surrounding the 1976 economic outlook and the vigor of the current recovery. Several respondents, however, indicated that underlying pressures for capital outlays might be building up. A senior official of a large paper firm thus stated that he placed "little faith" in official capacity utilization data, which he felt incorporated a great deal of obsolete facilities. Moreover, he noted that over the coming years the paper industry would be obliged to invest $1 billion or more to meet the requirements of the Environmental Protection Act. Several other respondents, including senior officials of utilities, metal container manufacturing, and chemical firms, expressed concern over the magnitude of the outlays their firms and industries would have to undertake to comply with this Act. The chairman of a large New York State utility thus stated that while there might not be an immediate demand for capital expenditures in the public utilities sector, the eventual expenditures for environmental control facing the industry were a "real sleeper." A number of respondents also expressed concern over the high and rising cost of replacing existing facilities, and the adverse impact of this development on their firms' cash-flow positions.
With respect to residential construction, several respondents viewed immediate prospects as relatively poor, or only slightly improved, reflecting the high cost of construction and maintenance, the continued availability of existing houses and apartments, and the uncertainties regarding the economic outlook. The president of a manufacturing firm, however, expected further moderate gains in single-family home construction and a "considerable" comeback of apartment buildings over the next 15 months. And a senior official of a thrift institution in a resort area reported that construction activities in his area had picked up in recent weeks.
Regarding loan demand, loan officers at large banks in general reported a weaker demand than they had anticipated late last summer and did not look for any significant pick-up over the near term. The Buffalo branch directors characterized the current and prospective state of loan demand as "stagnant" and unlikely to improve significantly until mid-1976 at the earliest. The president of a retail firm, however, expected loan demand in the retail industry to increase as retailers rebuilt inventories. Similarly, the president of a nonferrous metal firm felt that corporate loan demand has begun to show signs of reviving as inventory accumulation and capital outlays in certain sectors recover.