Beige Book Report: New York
December 14, 1977
The pace of economic activity in the Second District continues to expand moderately, according to directors and other business leaders who were contacted recently. Retailers are optimistic about holiday merchandising as department store sales quickened in early December, after some sluggishness early in the season. Retail inventories remain on the high side, though. Containerized port activity rebounded with the settlement of the dock strike, but district employment continues to grow only slowly. On the financial front, the persistent sluggishness in business loan demand appears to have prompted some New York City banks to take aggressive measures to encourage borrowing.
Department store sales strengthened in early December and district merchants are optimistic about Christmas-sales prospects. According to leading retailers, sales slowed in late November but posted sizable gains in early December. Several department store executives attributed the softening in late November to the unseasonably warm weather that followed Thanksgiving. As a result of the subsequent pickup in consumer purchases, most merchants expected a strong Christmas buying season. In New York City, retailers' assessments of the outlook ranged from "very optimistic" to "pretty good." Directors of the Buffalo branch reported that, despite the large layoffs by the steel industry, the sales experience in Western New York suggested a very strong holiday merchandising season. For the most part, retailers' reports on inventories suggested that stocks were high. Respondents emphasized that inventory positions are extremely difficult to assess at this time since so much depends on the strength of sales for the remainder of the holiday season. One respondent, nevertheless, felt that price markdowns would be required to bring stocks down to satisfactory levels. Reports on new car sales suggested that the district developments reflected national conditions. Area auto dealers reported an unexpected drop-off in new car sales in November. As a result, auto inventories were characterized as "very high."
In the industrial sector, comments of district business leaders continue to paint a mixed picture. According to the Buffalo branch directors, orders for industrial goods in upstate New York appear to be holding steady. More positively, the chief economist of a major paper firm noted a significant pickup in paper orders. For the most part, district industrialists reported ample unused capacity and had few plans to step up capital spending in 1978. Most expenditures appear to be aimed at replacing or modernizing existing plant and equipment, and few new capacity additions seem planned. One exception appears to be the petroleum industry. The economist of a major oil corporation stated that his firm planned large expenditures and that drilling activity for the industry as a whole was at a sixteen-year high.
Construction activity appears to be gaining some momentum, but continues to lag behind the nation. Several businessmen reported a pickup in residential construction activity in recent months. Nevertheless, joblessness among building trades workers remains high. Indeed, in order to encourage further construction activity, a bricklayers union in New York City has accepted more than a ten percent cut in wage rates for specific types of jobs.
Part of the general gloom of the region's sluggish employment picture has been dispelled by the settlement of the dock workers strike. In the wake of the settlement, employment and port activity rebounded as shippers attempted to move the backlog of imported merchandise to distributors and retailers. But some depressants to the district business climate remain. Cutbacks in steel production are continuing in the Western region of the district. Also, in New York State, an appeals court ruling overturned a lower court decision that had declared unconstitutional the payment of unemployment benefits to strikers.
Business loan demand continues to lag in the district. Partly as a consequence, one major New York City bank has introduced a new lending facility to accommodate commercial paper borrowers. The program involves very short-term lending at terms only slightly above the Federal funds rate. The facility is designed to provide borrowers a temporary alternative when paper financing is either relatively unattractive or not feasible. According to a senior lending officer of the bank, only a few dozen borrowers have used the facility in its initial month of operation, but other potential users appear to be interested. At least one competing bank has reportedly responded by matching this lending rate. Because of the pervasive sluggishness of lending demands, a few banks are reportedly foregoing compensating balance requirements, on a highly selective basis, on loans to prime customers or lending at somewhat below the prime rate. Outside of New York City, loan demand appears flat in Western New York, and Buffalo directors report no visible prospect for a turnaround in the near term.