March 15, 1978
Business activity in the Second District has still not fully recovered the momentum it lost earlier in the year when the harsh winter weather beset the region, according to recent accounts of directors and other business leaders. Retailers reported that, while their sales had picked up in February and early March, adverse weather continued to act as an impediment. Retail inventory stocks are regarded as being a bit on the high side, but merchants foresee a strong spring season and plan to run down their excess stocks then. Meanwhile, the coal strike does not seem to have had much effect on production in the district. But businessmen doubt that this immunity will continue if the strike lasts very much longer. On the financial side, although business loan demand has remained sluggish at large banks in the district, some see a modest strengthening in the coming months.
Consumer spending in the district appears to be shaking off its winter doldrums. Downstate merchants reported a pickup in their sales in February and early March, following the abrupt downturn in January. They generally felt, moreover, that the gains would have been even bigger if there had been more of a let-up in the weather. Elsewhere in the district, retail sales appear to have been fairly flat, though signs of an increase in consumer durable purchases were reported in the Buffalo area. Throughout the district, however, retailers remain confident and look forward to a strong spring season.
Inventory stocks at retail establishments are reportedly running on the high side. A director of this Bank suggested that the high inventories were due in part to the prevailing optimism regarding the sales outlook. Indeed, many retailers did mention that they are expecting strong retail sales in the spring and that this turnover will bring their inventory stocks into balance with sales. Furthermore, among the merchants who were queried, none expressed concern about excess inventories. Outside of the retailing sector, inventories were viewed as in line with sales.
Among those people who were contacted, few felt that their business operations had been hampered thus far by the coal strike. One business economist, who monitors the national economy, thought that the strike was having harmful effects nationwide. But neither he nor anybody else mentioned specific harmful effects that the strike had had on businesses located in the Second District. At the same time, it was generally agreed that a prolongation of the coal strike would soon begin to constrict business activity in the region.
Responses to the mid-February Quarterly Survey of Bank Lending Practices suggest that business loan demand in the Second District was weaker than anticipated in the mid-November Survey. Although nine of the 16 reporting large banks had expected moderate strengthening, only five respondents indicated such gains while one reported much stronger demand. The remaining ten banks reported the strength of loan demand as unchanged since mid-November. Data for large weekly reporting banks in the Second District generally indicate a flat picture of loan demand with seasonally unadjusted commercial and industrial loans (excluding bankers' acceptances) rising by $14 million to $37,248 million from November 16, 1977 to February 15, 1978. At New York City large weekly reporters, the comparable change was a decline of $171 million to $32,048 million. Seasonally adjusted data for these New York City banks show an increase of $54 million to $32,177 million in commercial and industrial loans between November 16 and February 15.
In spite of weaker than anticipated loan demand reported in mid-February, half of the surveyed banks expected moderately stronger loan demand in the three months ending in mid-May. However, six of the respondents anticipated no change in loan demand, while the remaining two expected demand to be moderately weaker.