Beige Book Report: New York
October 10, 1979
Business activity in the Second District has lately turned in a moderately strong performance, according to recent comments of directors and other business leaders. Consumer spending appears to be holding up overall, but there are scattered signs of incipient weakness. Businesses have kept a tight lid on their inventories, and their stocks currently seem to be well in balance with sales. On the financial front, business loan demand has lately surged at the New York City major banks, and the funds are reportedly being used to finance inventory and acquisitions requirements.
Retail sales of many items have been strong in recent weeks. Most of the large department stores reported that their sales receipts have been running ahead of plans; some went on to say that they foresee a year-over-year gain amounting to 4 or 5 percent in real terms. Two large national chain stores did indicate, however, that their sales had flattened out, falling below what had been planned. A spokesman for one of these chains thought that his company's relatively weak performance might have occurred because its clientele tends to be less affluent than those of the other retail chains. Actually, the problem appears to be more general. Even among the retailers which recorded satisfactory gains in total sales, there were more than the usual number of complaints about weaknesses in particular product lines or in particular areas within the New York region. In any event, all retailers unanimously reported that their inventories were still "in balance" with, sales. The exceptionally high cost of financing is impelling some merchants to consider cutting back their inventories. It should be mentioned, however, that the retailers which were contemplating such a move were the same ones which had experienced a weakening in sales receipts.
Automobile sales in the District continue to be brisk. Sales of small cars are booming, and the inventories of certain foreign makes are now down to rock-bottom levels. Moreover, the sales of intermediate- and full-sized models have also been robust, and it appears that dealers have succeeded in eliminating their former excess inventories of large cars. Indeed, the domestic dealers contacted were eagerly awaiting delivery of the larger-size 1980 models. Truck sales, however, remain flaccid. In the face mounting economic uncertainty, of course, these are the kind of capital goods which are among the first to be postponed.
Outside of retailing, the business situation appears to be fairly resilient. While most companies still foresee a near-term recession, they have not themselves been touched by the slowdown. A few businesses do report, however, that sales in certain consumer product lines are beginning to slip. Most firms still maintain that their inventory positions are "well managed" and in line with anticipated sales levels. Companies also generally report no change in their capital spending plans.
Companies in the Second District are worried, however, about the deteriorating price situation. Many foresee that the recent UAW settlement is likely to encourage labor unions to strive for larger wage settlements in the near-term. At the same time, there is also a distinct feeling that, by granting exceptions to particular industries, the Administration has greatly weakened its voluntary wage-restraint program.
Officials at some of New York City's major banks described September's surge in business loans as broadly based. The strong demand was mostly attributed to requirements for financing inventory and for acquisitions. All respondents reported that the terms of compensating balances have not firmed and that some big loans were still made below prime. Banks appear to possess much more liquidity now than they did in 1974. Most respondents expect business loans to remain strong for the remainder of the year.