Beige Book Report: New York
January 11, 1978
Business activity remains mixed in the Second District, according to directors and business leaders, but the outlook is viewed more favorably than in recent months. Retailers throughout the region apparently experienced an excellent holiday season, and their inventories are now judged at satisfactory levels. Although some hesitation followed settlement of the two-month selective dock strike, the outlook for shipping is now characterized as strong. There are also some scattered reports of increases in capital spending in the district. Domestic auto sales remain depressed, however, although some dealers are optimistic that activity could strengthen considerably in the spring.
Virtually all major retailers contacted in the Second District were elated over the strength of buying during the holiday season. Sales at the major department stores apparently at least matched or in some cases far exceeded expectations, which had already been high. New York City sales were especially strong, with some outlets claiming their best holiday performance in at least several years. While some retailers reported a large amount of discounting and promotional activity, few indicated that this was more than normal for the period.
Information on post-holiday sales is sketchy and conflicting. Some respondents reported that sales were holding up very well in early January, while others talked of a post-holiday slump. In any case, all retailers contacted indicated that inventories were now on target or only slightly above target. None viewed their inventories as a problem given the volume of business they experienced in December.
While department store sales have been strong in the district, according to most respondents, sales of domestically produced autos continue to be depressed. Dealers report that inventories are not moving because of price resistance and dissatisfaction with the new models. However, there appears to be growing optimism among dealers that this is simply a question of deferred buying, since a spring upturn is common when there has been a slow winter.
By contrast, foreign auto sales have been very strong, substantially above last year's level and ahead of all projections. A spokesman for dealers of a major foreign compact reported that, since the introduction of the 1978 models, inventories have been insufficient to meet demand, and there has been a backlog of orders. Although there has been a sharp increase in price, largely as a result of the depreciation of the dollar, there is no evidence of any price resistance as of yet. Instead, customers apparently intend to hold their newly purchased autos for a longer period of time, As they are buying more expensive options. These dealers believe former large car owners are switching to smaller cars but prefer the proven quality of the foreign models to the unknown performance of the new domestic small models.
In other sectors of the district economy, respondents also continue to paint a rather mixed picture. A Buffalo director indicated that the outlook for the chemical equipment industry is not good. The situation in the power equipment industry, however, appears brighter due to the general need for more power plants, but the long time frame for such construction makes specific predictions difficult.
A spokesman for a metals producer in the district reports that their copper and brass business is still strong. This is expected to continue for the next two months and reflects, in part, strikes at competitors. Although aluminum mill production has been good, demand for ingots is spotty. Demand for consumer metal products, on the other hand, is expected to continue to be strong through spring.
A spokesman for an upstate forge reports a mild increase in orders. He expects a steady level of orders through the first half of the year with most as replacement orders rather than net investment. With no expectations of bottlenecks in production capacity or shortages in labor or materials, he believes 1978 will be a good year.
The New York telephone company is projecting an increase in volume above last year's rise, according to one of the directors. He also indicated that the telephone company is planning to increase expenditures on new construction by approximately 10 percent over the 1977 level. Another director reported a substantial increase in capital spending plans by other companies in the Second District for 1978.
Contrary to initial impressions, the shipping industry in the Second District did not rebound immediately following settlement of the selective dock strike at the beginning of December. However, an executive with a leading steamship company reports that business now looks good and that his outlook for 1978 is very optimistic.