Beige Book Report: New York
October 13, 1976
The continuing improvement in economic conditions in the Second District appears to have been sustained in the face of the apparent slowing in the pace of the nationwide recovery, judging from comments of directors and other business leaders who were contacted recently. The strengthening in retail sales in New York City has carried into early October and appears to have spread into other parts of the region. While capital spending continued to lag, there are scattered reports of a pickup. The rate of joblessness in the region appears to have stabilized and the gap between the regional and national unemployment rates has narrowed. On the outlook for prices, respondents generally felt that inflation was moderating gradually and that the recent resistance to attempted price increases would help temper the future inflation. Nonetheless, many remained concerned over the prospects of mounting cost pressures.
Consumer spending in New York City appears to have retained its new-found strength. While for most of the year, New York City merchandising has been a weak spot for many national retail chains, that situation seems to have changed in recent months. The vice president of a national department store chain reported that the increase in September sales for New York exceeded that chain-wide average and that, while sales in the rest of the country showed signs of a weakening in early October, sales in New York City remained strong. According to a City department store executive, sales were strong in September and were better than expected in early October. The pickup in consumer buying appears to have spread outside of New York City as well. The directors of the Buffalo Branch detected a modest improvement in department store sales in September. Part of this impetus in the recovery in consumer buying may have been due to growing acceptance of Sunday openings. The head of a large department store chain in the Buffalo area noted a marked improvement in sales of the final weeks of September, which he attributed to the success of recent Sunday openings. He expects Sunday openings to become a way of life in the Buffalo area. In New Jersey, a trade association official noted that, although new car sales continued to be more sluggish than nationwide, automobile dealers were generally optimistic about the future. He also commented that sales apparently had been unaffected by the Ford strike.
Capital spending in the District continues to lag, but there has been scattered evidence of a pickup. The president of a company producing petroleum and building equipment expected his firm's capital outlays, which were up 50 percent this year, to double next year.. The president of a manufacturing company was also optimistic concerning plans to augment capacity, stating that his firm would be emphasizing machinery and tools rather than additions to plant. On the other hand, the vice president of a mining concern did not feel that his company would increase capital spending before early 1977, and the president of a maritime corporation stated that his company planned to purchase fewer new ships this year than usual.
Production of capital goods in the District continues to lag. A national manufacturer of industrial machinery announced a 2 percent reduction in its work force. At the same time, a major steel producer in western New York announced layoff plans in conjunction with the closing of relatively inefficient blast furnace facilities. Directors of the Buffalo Branch, however, expected the near-term prospects for new orders, production, and employment in steel and other heavy industries in western New York to be strong. One director, whose firm is a major purchaser of steel, contended that press reports were misleading in conveying the impression that recent cutbacks in steel production reflected weak demand. Rather, in his view, they were primarily attributable to a spreading out of existing orders to achieve more efficient production.
While the recovery in the region's economy since the trough of the recession has still not matched the national recovery, there have been some encouraging signs in the employment situation of late. The seasonally adjusted unemployment rates of both New York City and State held steady from June to August despite an increase in the national rate. Furthermore, in recent months the slide in the City's private employment appears to be coming to a halt. Indeed, for the New York-New Jersey metropolitan area, private employment increased in July for the first gain in almost three years.
On the outlook for price increases, a majority of respondents expected inflation to diminish slowly in coming months. The president of a national retail store chain thought the recent sluggishness of the economy would have a moderating influence on prices—both materials prices and product prices. Consistent with this view, the chief economist for a paper company stated that prices of his firm's products had "softened" recently, and the vice president of a company dealing in minerals said that demand conditions had not allowed cost increases to be passed on. The chairman of a major New York City bank felt that the recent resistance to attempted price increases was encouraging and a healthy development in helping to assure the continuation of the economic expansion. Other respondents echoed this view and generally felt that there was little danger of a return to double-digit inflation. The president of an international oil firm expected industrial prices to increase 5 to 6 percent over the coming year. The Buffalo directors expected prices of industrial materials to rise about 6 to 8 percent during the next six to nine months.
Although there was a consensus that inflation was likely to diminish, strong cost pressures remained a matter of concern to a number of respondents. One director expected major wage settlements to continue in the neighborhood of 10 percent. A senior economist of a major manufacturer also thought that the momentum for large wage increases still remained. Indeed, he felt that wage increases might become larger as certain groups of workers sought to regain their relative positions in the wage structure. Because this economist felt that the bulk of cyclical productivity gains had been exhausted, he expected upward pressures on prices to remain strong, with prices rising by a minimum of 6 percent in 1977. On the other hand, the president of a major chemical firm anticipated that employees would become less aggressive in their wage demands. As a result, wage settlements would moderate slightly, perhaps to a rate of 8-1/2 percent. An investment banking economist felt that price expectations would wind down, causing wage pressures to moderate. The president of a retail store gave another reason for wage moderation. He expected that businessmen would toughen their bargaining stances as they experienced difficulty in raising prices.