Beige Book Report: New York
April 12, 1978
Business activity in the Second District has largely recovered from the winter doldrums and is expected to grow at a modest pace in coming months, according to recent accounts of Directors and other business leaders. Retailers reported their sales had risen sharply in recent weeks, rebounding from the lackluster performance of the first two months of the year. While most merchants are looking forward to gains in the months ahead, they generally expect these increases will be of moderate proportions. Auto dealers, too, have lately experienced an upsurge in new car sales, but much of the rise is believed to be a bulge due to deferred purchases. While retail inventory stocks still seem to be on the high side, merchants do seem to have managed to whittle down these excesses, more or less according to plan. Outside of retailing, the other sectors of the regional economy seem to be improving. Inventory stocks are lean; inventory spending remains cautious; and new orders for durable manufactured goods are expanding at a fairly brisk pace. On the financial scene, business loans at large New York City banks continue to be sluggish.
Consumer spending in the District strengthened appreciably in March and early April. In New York City, department store executives reported substantial gains in sales as compared with the depressed levels of January and February. The improvement in retail activity was aided by the earlier-than-usual Easter holiday. Auto dealers also reported a substantial pickup in new car sales in recent weeks. Nevertheless, none of the dealers sounded exuberant about the outlook for the rest of this model-year. Apparently, they would be satisfied if their car sales for 1978 were just to match those for last year. In contrast, the other retail merchants are more upbeat in their forecasts. This will be, as one retailer put it, a "good solid year," but nothing "dazzling."
The pickup in retail sales helped to trim inventory stocks at retail establishments. Earlier in the year, merchants had said that they were counting on strong spring sales to enable them to pare their excess inventories. To a large extent this has occurred, although a few retailers are still saying their stocks are higher than they would like. Elsewhere in the regional economy, inventory stocks appear to be lean in relation to sales. The general feeling seems to be that inventories are either "adequate" or running a bit on the low side. While there may be some rebuilding of inventories in coming months, businesses do seem to be in a fairly cautious mood and are keeping a tight rein on their stocks.
In other sectors of the District economy, the pace of business activity seems to have picked up in recent weeks. Indeed, there are widespread reports of sizable gains in new orders for manufactured intermediate goods—ranging from paper to forged iron and steel to machine tools. This could be an advance indicator of a speedup in the recovery of the District economy. It seems likely, however, that some part of these recent gains in orders is simply the result of the resumption of normal business patterns following the end of the prolonged coal strike and the unusually severe winter weather. In any event, the overall tenor of the responses suggests that the outlook for capital spending remains cautious.
Business loan demand at large New York City banks has yet to show any sustained strength. Senior lending personnel at five large New York City banks were queried concerning the reasons for this phenomenon. All five respondents emphasized the importance of corporate liquidity of large firms that have experienced strong cash flow and, with fresh memories of credit stringency in 1973-74, have secured long-term financing unusually far ahead of anticipated needs. Looking at various competitive sources of funds, there were mixed opinions as to the quantitative importance of Eurodollar borrowing by large multinational customers. One respondent cited heightened competition from the commercial paper market, while two stated that they had not seen increased competition from that source lately. There were also mixed perceptions of the importance of competition for large customers from regional banks, with three respondents claiming more aggressive regional competition while two others did not rate it a very important factor. Among less publicized factors, two respondents cited competition for term loans from insurance companies, while another reported stiffer competition from finance companies. All respondents indicated that an acceleration in capital spending would certainly help loan demand, although they differed concerning the relative significance of this versus competitive and liquidity factors. Personnel at the two banks doing an appreciable amount of local business lending observed that loan demand by smaller Second District customers was stronger than that of the large national firms.