Beige Book Report: New York
May 20, 1970
In the Second Federal Reserve District, the Boards of Directors at the head office and at the Buffalo branch were solicited for their own and others' opinions regarding current economic conditions and the near-term outlook. In the summary, the responses showed substantial agreement concerning (1) a tendency for capital expenditures to be stretched out, where feasible; (2) no decline in inflationary expectations; and (3) an easing of the labor market in certain categories, but continued strong upward wage pressures.
Some businessmen reportedly are deferring or stretching out capital
spending plans where this is feasible. Apparently there is a growing
uneasiness about existing capital spending plans. One machine tool
manufacturer with a fairly large national business has recently
suffered a decline of more than
one-third in new orders. Spending
plans that are being completed as originally contemplated include
those where the firms have "no choice"; namely, programs that are
already in process, particularly if these have long lead times, and
programs that are connected with pollution control. In western New
York, for instance, 65-70 percent of the current capital spending by
the food processing industry is government mandated under air and
water pollution programs.
Most of the directors expressed the belief that businessmen were either as concerned about inflation as they had been, or increasingly so. One director noted a growing fear and puzzlement over whether the Federal Reserve System and the Administration "mean business" in the fight against inflation. Another director observed that industry fears wage and price controls and has consequently raised its profit margins.
As for consumer psychology, several directors indicated that consumers seemed to expect inflation to continue. There was a difference of opinion as to whether this worried consumers or whether it had been accepted as a way of life. At the same time, almost all of the directors who commented on consumer psychology saw evidences of conservatism in consumer spending. One director suggested that recent stock market developments could be expected to have a significant psychological effect on such spending.There was general agreement that businessmen are more concerned about the expected continuation of inflation than they are about a recession. There were varying opinions about when the "floor of the valley" would be reached, but apparently most directors did not think the slowdown would be very deep. A few of the directors noted that industry's principal concern has to do with the squeeze on profits, since increasing costs cannot be easily passed on in a sluggish period.
Conditions in the labor market are very uneven, to judge from the directors' remarks. Some directors noted that it had become more difficult for college graduates to find jobs in certain categories; e.g., as engineers and physicists. Moreover, unskilled help is apparently in easy supply. However, qualified skilled labor continues to be tight. Particular note of this was made with regard to the Buffalo and Rochester areas.
Some of the directors observed that despite the easing in some labor markets, there was no detectable easing of upward wage pressures. Special comment was made regarding the steep demands by the building trades unions in the Rochester area. These reportedly stem from the very generous settlements obtained last year by the same trades in the Buffalo area. Note was made of wage increases granted by some businessmen in their lowest paying job categories.