Beige Book Report: New York
August 11, 1976
The Second District economy continues to have difficulty gaining momentum, according to District directors and business economists contacted recently. Regional retail sales apparently softened in July, with the weakness heavily concentrated in apparel. However, sizable inventory imbalances were avoided, for the most part, largely as a result of cautious purchasing policies. Further improvement in home building appears uncertain, with high prices and a backlog of unsold homes restraining construction of single-family units and few signs of any pickup in multiple-family residences. Overall, the regional economy still lags behind that of the nation, in large measure because of the prolonged slump in activity in New York City.
Consumer spending in the Second District slowed in July. Retail sales in New York City were characterized as sluggish by department store executives. Directors from the Buffalo area reported that, aside from the auto sector, July sales softened considerably from June and sales in the first few days of August gave no indication of marked improvement. The president of a Rochester retail store indicated that the weakness was general throughout the state. An official of a trade publication felt that to a large extent the weakness stemmed from a slowdown in spending on apparel, and that buyers appeared to have become value conscious. Despite this softness, the president of a major nationwide retailer which specializes in apparel did not expect the slowdown to continue in coming months. Some respondents noted a change in the mix of consumer spending, as purchases of appliances apparently have held up.
Retailers appear to be very cautious in building inventories, responding quickly to changes in expected sales growth. As evidence of this, virtually every analyst contacted cited the fact that large inventory buildups did not accompany the sales slowdown. Nevertheless, some imbalances remain in the composition of inventories—old spring and summer stock versus new fall lines. Directors of the Buffalo Branch reported that promotions and markdowns had only limited success in moving merchandise. A senior official of a national retailer said his chain's markdowns would continue into August. A business analyst reported that outright order cancellations were rare but that many retailers appeared to be limiting or delaying ordering new merchandise and were planning instead to reorder if demand proved sufficiently strong.
Continuing problems with multifamily building were seen as limiting prospects of a pickup in the rate of recovery of residential construction. A senior economist of a major appliance manufacturer felt that home building was in a bind created by an imbalance between personal income and the high carrying and downpayment costs of a new home. The large backlog of unsold units was seen by another analyst as further restraining any near-term acceleration in activity. One director reported some spotty pickup in housing activity in central New York State. Outside of residential activity, a regional analyst thought that public construction spending in New York State would remain at a standstill for the near term. Commercial activity was seen as possibly recovering modestly, with the building of shopping centers and stores.
Overall, the regional economy continues to lag behind that of the nation. To a large extent, this is due to the failure of the New York City economy to revive. Over the first half of the year, estimates suggest that the City accounted for almost nine out of every ten jobs lost in the State. Total employment in New York City, seasonally adjusted, has continued to decline. To be sure, private employment appears to have stabilized, but at the lowest level since record keeping began in 1950. The rate of joblessness in the City is some 3 percentage points above the national average. Even this wide differential disguises the depth of the metropolitan area's slump, however, because a substantial reduction in the labor force has been an important factor in holding down the unemployment rate.
In addition to the weakness of the City's economy, a commercial bank economist felt that part of the economic sluggishness of the region reflected the importance of capital goods production in upstate New York. As a mature region with older, less efficient plants, the upstate region responds to a revival in capital spending with a lag—reportedly moving ahead with vigor only when national capital spending is well into an expansion.
As to the overall outlook for the national economy, a senior economist of a financial firm was highly optimistic, expecting a long-lived recovery and a sharp moderation in inflation. On the other hand, another senior economist expressed apprehension over the danger of a future pickup in real growth with concomitant upward price pressures. An economist of a major business equipment producer looked for deceleration in real growth but anticipated a favorable price performance. With regard to industrial materials prices, the president of a major metals firm felt that, while there would be further increases, a relative "breather" was likely compared with recent previous months. A nonferrous metals economist viewed as likely an additional copper price increase late in the year, with the possibility that the price of aluminum ingots would rise early next year. The Buffalo directors felt that, with substantial agricultural production in prospect, price pressures in this sector would be modest.