Beige Book Report: New York
June 14, 1978
Business activity in the Second District continues to expand moderately according to recent comments of directors and other business leaders. No industrial materials shortages were reported, nor were any anticipated in the foreseeable future. Current labor supplies appear to be adequate for the most part, although a few shortages of skilled labor were noted. Respondents generally discount the possibility of wage and price controls. Fears of further inflation, at least in the short term, were judged to have induced consumers to step up spending. Among notable regional developments, inventory policies remain cautious, and capital spending shows signs of strengthening. On the financial scene, many District banks appear to be offering the new six-month time certificates. In the short time this instrument has been available, commercial banks' marketing efforts appear to be moderate as has consumers' reception of the new investment.
With respect to aggregate supply conditions, there were no shortages of industrial materials reported. Moreover, none of the respondents anticipated such shortages emerging in the foreseeable future. One agricultural director did note that there was a. severe shortage of railroad cars which may hamper transportation of grain to market. On the labor front, respondents characterized overall labor supplies as adequate. Nevertheless, some slight shortages of specialized workers appear to have emerged. In the automotive sector, temporary shortages of tool and dye workers were reported, but these shortages were not expected to affect production. Plant managers, mechanics and mold makers were also cited as specialized skills that were in relative tight supply by one director.
For the most part, retail sales in May and early June were judged to have been on target. Nevertheless, for the year as a whole, several merchants felt that sales were below expectations. As a consequence, retailers viewed their inventories as somewhat high, but voiced little concern over their ability to work off any excesses once the summer sales season rolled into gear. Automotive sales have been brisk in recent months. One industry economist attributed the current spurt to a combination of "catch-up" buying after the past winter and consumers attempt to beat price increases due on the new model year cars. Thus, he expected sales to taper off considerably later in the summer.
Outside of the retail sector, the outlook for capital spending in the District appears to have strengthened. The president of a major utility reported that his firm was experiencing record growth that, in turn, was triggering an increase in capital spending plans. Reports from the directors of the Buffalo branch suggested a noticeable brightening in the outlook. A major Rochester firm has commenced construction of a major facility. At the same time, several manufacturing firms in Buffalo are going ahead with planned plant expansions. Upstate capital goods producers reported a steady increase in new orders.
While inflation remains a dominant concern among respondents, directors and businessmen did not expect a reimposition of wage and price controls. In general, retailers reported that their pricing practices were unaffected by the possibility of wage and price controls. Notwithstanding these comments, several related rumors that some stores were selling items at discount so, in the event of controls, prices could be raised back to list. In a similar vein, leading industrialists noted that the uneasiness which surrounds the controls issue has prompted some firms to protect themselves by implementing discount policies so that the discount can be eliminated very quickly, if necessary.
A representative sample of commercial banks in the Second District were contacted concerning the newly allowed six-month time certificates. All respondents were offering the certificate at the ceiling rate as determined at the weekly auction of 180-day Treasury bills. Marketing efforts on the part of commercial banks have varied considerably as has consumer interest to a lesser extent. Most respondents, however, reported only a moderate amount of advertising and a slow or very slow consumer response. When asked about the proportion of certificates representing intra-bank shifts from other instruments, the majority stated that they had not yet made such a calculation. Looking at the new certificates' impact on net deposit flows over the next six months, about half of the surveyed banks indicated that they expect little or only a modest net inflow, while the others expressed no opinion at the time.