Beige Book Report: New York
January 13, 1977
Economic conditions in the Second District have continued the moderate improvement noted in recent months, according to directors and other business leaders contacted recently. Retail sales ended the holiday season with a flourish after some sluggishness early in the season. With a few exceptions, inventories seemed to be at desired levels. While orders for capital goods have been coming in slowly, this was partially attributed to businesses awaiting the policy decisions of the incoming administration. The recent price increases of steel and other materials and products were generally expected to hold. On the labor scene, there were predictions of moderation in wage demands this year but more emphasis on improvements in non-wage benefits.
The consensus among retailers in the Second District was that Christmas sales turned out very satisfactorily. As judged by historical patterns, consumer spending started out slowly in December but picked up sharply as Christmas neared. Many retailers characterized the week before Christmas as unusually strong. Within the New York metropolitan area, sales were generally regarded to be stronger in the suburbs than in the City. Upstate, one department store executive labeled the Christmas season as excellent. Directors of the Buffalo Branch, on the other hand, characterized the holiday season as good but not up to original expectations. In their view, exceptionally severe weather may have had a dampening effect on sales. While some merchandise was marked down prior to Christmas, most retailers indicated that markdowns were no greater than customary. On the other hand, two department store executives reported extra promotional activity this Christmas. Early reports on post-Christmas sales were very encouraging, and most retailers were optimistic in their outlook. Nonetheless, the high level of gift certificates purchased this Christmas was interpreted by some as a sign of lingering consumer caution.
On the whole, inventories were thought to be in good shape. A few scattered exceptions were mentioned. For example, one director pointed out that inventories of nonferrous metals continued to be extraordinarily high. At the same time, there remained problems with the mix of automobile inventories. Stocks of small cars were too high although they were improving, aided by the rebate programs; stocks of intermediate and full-size cars continued to be tight. Overall, the consensus was that inventories were or soon would be reasonably balanced. One business leader, however, predicted that inventory targets would soon be raised, thereby fostering a moderate step-up in inventory accumulation.
Capital goods producers in the district generally reported that new orders have been coming in at a relatively slow pace of late. In the view of two respondents, this sluggishness stemmed in part from businesses waiting to see what programs the new administration would propose. Of particular interest was the decision as to whether or not to raise the investment tax credit—an issue that was left unresolved in the announcement of President-elect Carter's proposed program of fiscal stimulus. Capital spending was not expected to rise sharply over the next quarter or so, but some business leaders did predict a speedup later in the year.
Concerning the price increases recently posted on various basic materials and products, most business leaders contacted thought the higher prices were generally sticking despite some reports of discounting. An economist for an automobile company reported that although steel prices had been discounted in early December, posted prices seemed to have been holding since then. An executive in the capital goods industry agreed that price increases for flat-rolled steel products appeared to be holding, but added that discounting could begin if the automotive industry did not expand production as much as expected. With respect to stainless steel and aluminum, a director reported that recent price hikes were sticking.
Although there was no consensus concerning wage increases for 1977, most business leaders anticipated some moderation from 1976. The rate of inflation was expected to be an important determinant of wage increases. A corporate economist pointed out that some of the wage settlements expiring in 1976 were negotiated during the period of wage controls. The contracts expiring in 1977, in contrast, were negotiated after the wage control program ended, implying that the workers covered by these latter contracts have less "catching up" to do. Some respondents expressed the view that a high unemployment rate will have a smaller than usual moderating effect because the current high rate of unemployment reflects rapid labor force growth rather than sluggish labor demand. Nonwage issues, including job security, fringe benefits, and pension provisions, were seen by some as especially important in 1977. Indeed, one executive thought that while wage increases would moderate, there would not be much relief from cost pressures. Another business leader predicted that the recent contract negotiated by the automobile workers would make labor negotiations tougher than usual this year. On the other hand, directors at the Buffalo Branch thought that the willingness of labor to work with the new administration would help to prevent serious labor disruptions.