Beige Book Report: New York
September 12, 1979
Business activity in the Second District appears to have regained some of the ground it had lost earlier in the summer, according to recent comments of directors and other business leaders. Consumer spending strengthened from its summer doldrums. Using heavy promotions and large price markdowns, department stores registered record sales and pared inventories to leaner levels. Sales of new automobiles also posted a strong gain, helping dealers get out from under their bloated large-car inventories. Outside of retailing, most respondents remain cautious. New orders have been sluggish, but production schedules have been adjusted to prevent an excessive inventory buildup. Although there is widespread agreement that the economic slowdown will not bottom out until next year, most capital spending plans remain unchanged. On the financial front, business loan demand continues strong with little evidence of tightening in credit standards or nonprice lending terms.
Consumer spending in the Second District turned in an unexpectedly healthy showing in August. Retailers chalked up record sales; one nationwide chain reported that its sales were more than 20 percent ahead of last year. As in recent months, sales at New York City stores outpaced those at suburban branches; but with the easing of the gas shortage, the suburban branches have lately made a strong comeback. Still, retailers are unanimously conservative in their outlook for coming months, expressing some concern that the upturn may be the short-lived result of heavy promotions and markdowns. Thus, while stores are planning to replenish their depleted inventory stocks, they intend to keep inventories on the lean side.
In recent weeks, there has been a noticeable improvement in the automotive sector. Small-car sales continue to boom, with no letup in sight. Lately, moreover, there has been an advance in the sales of intermediate- and full-size vehicles. Dealers attribute this pickup both to an easing of the gas shortage and to heavy price promotions. Price incentives have reportedly been running about $700 per GM car, and to as much as $1900 per Chrysler car. Used car sales have been brisk. As a result, the bulging stocks of new and used larger-size models have now been brought down to more manageable levels. Truck sales are also up, though they remain well below the rapid pace of early 1979. Respondents are not aware of any financing problems, and consumer credit seems readily available. It does appear, however, that consumers are lengthening loan maturities. Four-year auto loans now are becoming quite common.
Outside of retailing, business activity appears to be holding up fairly well. New orders do seem to have weakened a bit, but most businesses report no change in their capital spending plans. One major steel company feels that it will be well insulated from an economic downturn, as any future slackening which may occur in capital goods production will be compensated for by a rebound in the production of consumer goods. In general, however, the consensus forecast is for a relatively mild slowdown, brought on by sluggish consumption spending and lasting through the early part of 1980. Yet, apart from the auto sector, there is little evidence of a recession in either western New York or the downstate region. Nor are there reports of any involuntary inventory accumulation. Indeed, one metals company has been running such a tight inventory policy that it experienced stock-outs of certain items. Other companies report that they are shipping goods out about as fast as they are producing them, maintaining their inventories at comfortable levels.
On the financial front, there were no signs of a let up in credit demands. Senior loan officers at major New York City banks indicate little change in bank lending policies on business loans and do not expect a near- term slowdown in the demand for such credit. While a few respondents expressed less willingness by their banks to extend loan commitments at predetermined interest rates, most revealed no tendency to tighten the criteria used to screen business loan applicants. The consensus of respondents expects business loan demand to continue at the present rapid pace. Inventory investment was the factor most frequently cited as bolstering loan demand. With respect to mortgage markets, financing in New York State is extremely tight according to the comments of the Buffalo branch directors. Because of the state usury ceiling, the state-chartered lending institutions are committing little, if any, new money to mortgages while the national banks are allocating limited new funds at 11 1/2 percent interest which are being absorbed very quickly.