January 31, 1979
Economic activity in the Second District appears to have expanded at a fairly brisk pace in December and January, according to the recent comments of directors and other business leaders. Retailers recorded much stronger sales during the Christmas season than they had expected, and their inventories are running on the lean side. In other sectors of the regional economy, business also appears to have picked up. New orders were booked at a vigorous pace, order backlogs lengthened a bit, and inventories remained well under control. Although there are presently no signs of an impending slowdown in U.S. economic activity, businessmen remain cautious with many looking for a recession later in the year. For all of the respondents, inflation remains a major concern.
The strength of retail sales in the Second District during the holiday season spilled over into the new year. Since consumer buying had been rather sluggish at the beginning of the Christmas season, the vigorous overall performance reflected consumers' unrestrained binge in spending toward the end of the season. While this spending spurt has extended into the new year in the downstate region, upstate merchants report a much more mixed experience. In any event, retail inventories are "well under control" and indeed appear to be a bit on the lean side. While these lean inventories are partly the result of the unexpectedly strong holiday sales, the retailers themselves do appear to be trying very deliberately to keep a tight lid on their inventories. Meanwhile, there is also some evidence that consumers have stepped up their purchases of bigger-ticket items. Auto dealers in the blew York City area report sharply improved sales activity, and they claim that they could have chalked up even larger sales had it not been for shortages of particular models. One dealer in foreign cars thought that the exceptionally strong sales he was experiencing for his small cars might be related to the shortage of unleaded gasoline which many new American-made cars require.
In addition to retailing, overall business conditions also appear to have lately taken a turn for the better. Businesses report that their new orders have either risen modestly or else are "holding up well"; some businesses have revised their capital spending plans upward a bit; and everyone claims that his or her company is adhering to a very parsimonious inventory policy. One director remarked that business was booming for a heavy industrial manufacturer with which he was familiar. This company produces heavy-duty equipment such as railroad cars and oil gear, and it was already totally booked up for 1979. Similarly robust conditions were also reported for such diverse industries as aerospace, photographic equipment, automotive supplies, building materials, machine tools, petroleum, paper products, and aluminum. Only in the fabricated metals industry was there any evidence of a softening in demand. While businessmen still say that they are "nervous concerning the economy," it seems that fewer of them now believe that a national recession is imminent than was the case a few months ago.
On the financial scene, there was a consensus among respondents that lenders had recently tightened credit standards. The directors at the Buffalo branch, for example, generally agreed that lenders had either tightened their standards outright or were more closely monitoring borrowers' financial conditions, especially small and medium-sized businesses. A leading labor union official indicated that mortgage money in New York State remained very tight. Downstate bankers indicated that they had raised credit standards in response to strong loan demand and constraints on their ability to obtain new sources of funds at profitable rates. On the outlook for mortgage demand, one New Jersey banker noted that home sales and mortgage demand appeared to be turning sluggish. In contrast, another New Jersey banker reported that a large industrial developer and builder whom he knew was looking forward to a "very busy" year that would exceed the sales records he had set in 1978.