Beige Book Report: New York
July 1, 1980
Business activity in the Second District declined in May, although the decline appears less rapid than in April. Consumer spending at some major department stores showed signs of picking up, but domestic automobile sales continued soft. There is no evidence that the recent easing of the consumer credit controls spurred spending. Outside the consumer sector, the outlook was generally pessimistic. New orders declined further or stabilized at low levels for many manufacturing firms. Production cutbacks, as orders fell, have limited inventory build-ups. Despite the uncertain economic conditions, few changes have been made in capital spending plans and capital goods producers still report strong demand. The weakening in demand has reduced the upward pressures on prices. On the financial side, loan demand continues to languish despite the recent sharp decline in interest rates.
Consumer spending in the Second District was mixed in May. Sales at retailers that cater to high-income consumers in Manhattan and nearby New York suburbs generally improved over April's disappointing levels. Still, sales remained below January's and February's levels. A large influx of tourists and foreign visitors helps account for some of the good showing in Manhattan, but the sales at the New York suburban malls also point to an underlying strength. Other large retailers reported sales to be disappointing and did not expect a pickup until the end of 1980. The pattern of consumer spending varied in other regions of the Second District. Retail business in New Jersey began the month rather sluggishly but then recovered somewhat. Retail sales in upstate New York remained mixed. Scattered inventory problems were cited among retailers, but tight management seems to have averted any serious difficulties. Concerns appear to focus on the build-up of certain large-ticket items.
Domestic car sales continued soft in May, but there were reports of some pick-up in June. Overall conditions have been described as "disastrous" with many dealerships folding. Lack of consumer interest and confidence, as measured by a low volume of floor traffic, were cited as reasons that were more important than lack of credit availability in causing the weakness in sales. Inventories are in satisfactory shape for the most part. Imported car sales, which had also dropped precipitously in April and May, seem to have recovered in June. Used car sales appear to be picking up as well. There are scattered reports of an easing in auto lending credit conditions.
Outside the consumer sector, overall business conditions have deteriorated further in recent weeks. A sharp fall-off in new orders was reported by manufacturers in such diverse industries as copper, brass, and aluminum products; machines and tools; chemical products; industrial packaging, and other paper products. Smaller declines were registered among manufacturers of consumer related non-durable photographic supplies, auto-related electrical products, and sheet metal. Sharp declines were reported earlier by firms in such diverse industries as steel, fibers, large electrical appliances, plywood and lumber. Inventories in these industries are generally at satisfactory levels due to immediate cutbacks in production in response to falling orders.
In contrast to other Second District producers, capital goods manufacturers are still reporting strong demand. Backlogs remain large, and orders are robust. Similarly, business is strong for manufacturers of small electrical appliances and audio equipment. The aerospace and the home improvement industries are also doing well. It appears that at least at some larger firms plant and equipment spending plans will be maintained despite the near-term falloff in business activity. On the other hand, a major chemical firm reduced its current dollar spending plans. There are some reports of retailers either reducing their plans or deferring them. The most common technique of making adjustments, however, seems to be stretching out or postponing capital spending, rather than reducing its dollar amount.
With the economy weakening, evidence is mounting of an easing in inflation—apparently more marked than in the previous recession. List prices have not been lowered all that much, but prices are not rising much from the previous month and even some discounts are apparently being offered. Wage pressures also seem to be easing in response to the weakening in the labor markets.
No evidence was seen of any increase in consumer spending resulting from the recent easing of the credit controls. Instead, the psychological impact of the program was still felt to be severe. Financing terms at commercial banks are reported to have eased in recent weeks. All major thrift institutions have lowered mortgage interest rates and some have even begun to aggressively advertise for borrowers. Business loan demand at banks has not recovered despite the recent drop in interest rates.