Beige Book Report: New York
April 14, 1976
A steady recovery continues to characterize the business outlook, according to the views expressed by Second District directors and other business leaders who were contacted recently. Consumer spending remains strong; business inventories are down to levels where some rebuilding may be required to keep in line with sales; capital outlays are still sluggish but are generally expected to pick up; and residential construction appears to be strengthening. On the darker side, the District unemployment picture remains bleak.
All indications point to continued strength in consumer spending. The president of a nationwide chain of department stores reported that retailers were generally optimistic, 1976 is expected to be a good year and there is nothing on the horizon "that might hurt business this year." He felt that consumers were being less price conscious, and reported that higher price items were selling well. The vice-chairman of a multinational electrical products firm noted strength in the sale of consumer durables, and expected such sales to remain strong throughout 1976. An economist for a multinational nonferrous metal producer noted that despite the stepped up consumer buying, such outlays have not kept up with the rise in consumers' real income, opening prospects for further growth in the pace of consumer spending. Similar sentiments were expressed by several bank economists. Regarding the District retail sales picture, the president of the nationwide chain mentioned above stated that his firm's New York City area stores have been doing well, "as well as anywhere else." While sales at large New York City department stores during March were only about 5 percent above March 1975, in part reflecting the later Easter date this year, area merchants expected sales during the March-April period to substantially exceed those of last year. An upstate banker reported that sales in his area continued strong, while the Buffalo branch directors reported that, after a sluggish start, spring consumer buying in Western New York had "come on strong," especially during the last days of March and early April. Larger retail stores were reported to be doing particularly well.
As in recent months, respondents felt that the continued strength in retail sales had found its counterpart in the termination of downward adjustments in business inventories, and in emerging evidence that the rebuilding process was getting underway. Among others, a business economist stated that "retail stocks are obviously too low" as a result of a greater than expected volume of sales, and that manufacturers and wholesalers will also have to be adding to inventories to keep up with sales growth. Another observer, a financial economist, felt that with consumer spending running ahead of expectations, some businessmen found it difficult to avoid a drop below desired levels in their stocks of certain products in strong demand, The consensus, however, was best summed up by the Buffalo branch directors who felt that businessmen have learned to live with lower inventory-to-sales ratios through improved inventory management techniques but that, with mounting confidence in the economic outlook, these businessmen were cautiously rebuilding inventories. These directors expected such rebuilding to accelerate as spending for capital goods increased.
Regarding business capital outlays, several bank economists and other respondents reiterated the view expressed in recent months that these outlays could be expected to pick up as business activity continued to expand. However, as yet, there is no concrete evidence that a significant pickup has gotten underway in this sector. Senior officials of two nationwide retail firms reported that their firms maintained a cautious and "selective" attitude towards the opening of new outlets. The president of a machine-tools producer reported a substantial rise in inquiries by businessmen, but little increase in actual orders. Similarly, the official of the electrical product firm reported heightened interest in bidding, but that this interest has not been translated into "action," and indeed that his firm's backlog of orders for industrial equipment actually was off.
Reports were mixed regarding the current construction picture, but on balance suggested some improvement. Unrented office space in New York City was reported to have declined about 8 percent over the past year. A business economist stated that the current moderate recovery in the housing industry should continue through this year and next, with mortgage money readily available and with demographic pressures and the pent-up-demand for housing built up during the 2 years of recession providing momentum for steady gains in housing starts. Similarly, a financial economist pointed to the strong jump in residential contract awards in February as auguring strength in the construction not only of single family homes, but of apartments as well. The Buffalo directors reported that major builders of luxury class homes in Western New York were doing a "brisk business." One director pointed to the increasing demand for building lots as indicating a probable future strengthening of construction and the directors in general felt that the availability of mortgage money in their area was sufficiently adequate to promote substantial further improvement in home building. On the more restrained side, the chairman of a large New York City bank reported that construction of commercial structures and of condominiums continued sluggish and could be expected to remain so over the near term. On the basis of his firm's weak sales of plumbing material, the official of the nonferrous metal firm felt the demand for new homes remained lackluster, while several upstate directors reported continued weakness in the building of low to moderate priced homes.
The District unemployment picture generally remained bleak but there were indications of a slight improvement. The unemployment rate (not seasonally adjusted) for New York City edged down to 12 percent in February from 12.2 percent in January, and for New York State to 10.9 percent from 11.1 percent. These rates had continued to increase in January. A director associated with an automotive product firm reported that his firm's output and employment were well ahead of pre-recession levels, reflecting the improved demand for automobiles. The local labor market, however, continues very slack; for example, a major Buffalo area food processor who announced openings for 200 workers received 3,000 job applications on the first day.