Beige Book Report: New York
January 14, 1976
The business outlook for 1976 on balance is relatively good, in the views of Second District directors, other business leaders, and financial economists who were contacted recently. Real gross national product (GNP) is expected to grow over the year. The Christmas and post-Christmas retail selling seasons have been successful. While retail sales continue to provide the main prop under the recovery, some respondents expected some reinforcement from the inventory accumulation now underway and, after mid-year, from business capital spending. The outlook for corporate profits was, for the most part, regarded as good.
We recently requested our directors and a number of financial economists for their appraisal of the business outlook for 1976. In varying degrees, the respondents in general were cautiously optimistic. Among others, the president of a large nationwide department store chain expected real GNP to grow by about 5 1/2 percent over the year. He expected consumer spending to continue to provide the principal stimulus during the first half of 1976, and to be reinforced by a pickup in capital spending by mid-year. He felt unemployment would decline throughout the year, but would remain above 7 percent. In his view, barring poor crops, there was hope that the rise in consumer prices could be held in a 5 to 7 percent range. The chairman of a large New York City bank also felt business capital spending might pick up after mid-1976. The Buffalo branch directors generally agreed that the business outlook was reasonably good at this time, with "attractive interest rates" and generally good consumer confidence as factors supporting this favorable outlook. A senior economist at a large New York City bank expected a "good, balanced, and sustainable" expansion this year, with real GNP growing by 5 to 5 1/2 percent. As yet, however, he saw no evidence of any significant pickup in capital spending in real terms. He expected such outlays to rise by 8 to 10 percent in dollar terms, with a token increase in real terms in the last part of the year. This economist also expressed "some worry" over the possible impact on inflation of the potential terms of the settlements of the many wage negotiations coming up in 1976. Another bank economist stated he was cautiously optimistic on 1976, and that the recovery was taking hold and should result in a rate of real growth of 5 to 6 percent, in his view a very reasonable performance under present conditions.
As noted, consumer spending continues to provide the main thrust to the current economic recovery. In this regard, the president of the large chain of retail stores mentioned above reported that the Christmas selling season had been "good to excellent," with sales exceeding expectations, even in New York City where sales have lagged behind the nationwide performance. The chairman of a large New York City department store reported the holiday season had ended on a very strong note, with sales intensifying the closer Christmas approached. Similar observations were made by a number of other New York City retailers. A survey of large New York City department stores revealed that Christmas and post- holiday consumer buying had lifted their December sales to a level 8 percent above December 1974, the largest increase in 16 months. The performance in the suburbs was even better, with sales in the metropolitan area nearly 11 percent over the comparable period of 1974—the biggest increase in 23 months. District sales outside the New York City area were also strong. An upstate banker noted that holiday sales in his area had substantially exceeded expectations. The Buffalo branch directors were in general agreement that the Christmas selling season in Western New York had been good, with sales, in dollar terms, running 8-10 percent above year-earlier levels. These directors, moreover, reported that the holiday season increase in retail buying has been followed by good Sales so far in 1976. In their view, however, the mood of consumers appears to be mixed. Consumers have discretionary spending money and seem to show little resistance to spending for recreation, travel, and small-ticket items. Inflation, job insecurity, and economic uncertainties in general, however, tend to be reflected in a more cautious attitude toward the demand for big- ticket items.
Regarding corporate profits, the great majority of the respondents looked for an increase in 1976. Among others, the president of the retail chain stated that the outlook for such profits was "excellent", as productivity was improving dramatically while the volume of sales was rising. Against this background, he expected profits after taxes to gain about 30 percent next year. For the same reasons, one of the bank economists expected profits to rise throughout 1976, also by 30 percent for the year. All of the Buffalo branch directors also expected corporate profits to increase in 1976, in reflection of emphasis on expense control coupled with increased consumer spending. Their estimates, however, ranged from rather modest increases to as high as 25 percent above 1975. Exceptions to the rather optimistic profit outlook were voiced by directors associated with the petroleum and the metal industries, who did not expect these industries to fare well during 1976.