March 9, 1971
The consensus view of an informal survey of several of our directors is that there is a considerable amount of optimistic talk about the economic outlook at the senior management level in major firms in the Fourth District and elsewhere. The optimism, however, is tempered with caution resulting from a lack of specific evidence signaling an upturn in overall activity or at the individual firm level. As a result, many firms, especially capital goods producers, are pessimistic about a quick resurgence in economic activity, but expectations of improvement near the end of 1971 or in early 1972 are reported to be widespread.
One director, the president of a large manufacturer of computers and business machines, reported that the ready availability of credit, declining interest rates, and expectation of stimulative fiscal policy in fiscal 1972 have generated some optimism, although many businessmen remain uncertain about the time paths of the expected recovery. The key element in the business picture, according to this director, is the consumer. Once consumer spending picks up and utilization of existing plant and equipment returns to near-capacity levels, business spending for additional plant and equipment will increase and the recovery process will be underway. This director indicated that sales of cash register equipment have held up relatively well, in spite of numerous postponements of new store locations by major retail chains. Computer sales, on the other hand, have been severely depressed and are not expected to recover until yearend or early 1972.
A second director, who is the chairman of a large diversified manufacturing firm (major divisions include auto components, defense and space products, and electronics), expressed the view that economic activity will probably improve during 1971. He also reported that there are a number of favorable "straws in the wind" from his firm's point of view: consumer-oriented products (radio and TV parts and auto components) have picked up; orders for offshore oil drilling equipment have risen; sales of automated supervisory control equipment have edged up slightly; and Government related business has increased modestly. Furthermore, this director expressed continued concern about inflation and indicated that he has expressed directly to senior Administration officials strong support for the Government's actions in the construction industry. He is convinced that the persistent irritation is the result of cost-push pressures. Some prices have declined and he believes that excess capacity and competition would force businessmen to be more responsive in pricing policies in the absence of continued excessive wage demands. This director also expressed the view that consumer confidence is precariously balanced and that further "bad news" or unexpected shocks could further undermine consumer confidence and, thus, hamper the expected recovery in economic activity.
A third director, the president of a major glassware and glass container firm, reported that their new order backlog for consumer glassware is slightly higher than the year-ago level, reflecting an increase in orders from retail chains. Glass container orders are about equal to the early 1970 level. Orders for and shipments of industrial glassware, especially home lighting equipment, are significantly above last year's level, as a result of the "boom" in housing. This director also referred to the "apparent optimism," but indicated that his own situation is very quiet, "we're waiting" and "there is nothing stirring."
A fourth director, the president of a medium-sized machine tool manufacturing firm, reported that industry leaders are more optimistic about the chances of a recovery in business and in demand for machine tools by the end of 1971 or early 1972 than they were two or three months ago. The renewed optimism is based, in part, on current and expected stabilization policies and also on a recent sharp increase in requests from customers to see salesmen. So far, however, the flurry of activity has not been translated into an increase in new orders. At the present time, order backlogs for the industry are at the lowest level in several years, incoming orders are dismal, and as a result, employment has been sharply curtailed.
On the financial side, two bank directors have expressed strong sentiments to the effect that the System has gone "far enough" in reducing interest rates and they are prepared to oppose any further reductions in the discount rate. One banker-director, the chairman of one of the largest banks in the District, expressed grave concern about the international repercussions of any further easing in monetary policy, indicating that foreign central bankers will "... not fool around with us." This banker reported no pickup in business loan demand. This director also serves as a member of the Board of Directors of several national firms, and he reports that the management of these firms has no expectations of a quick turnaround in activity in the immediate future, especially in the manufacturing area.
The second banker-director, the chairman of a medium-sized bank in the District, was opposed to any further easing of monetary policy in psychological grounds. He reported strongly held convictions that consumer spending will not surge upward as long as there is a feeling that "... everything is going down." Banks have more than enough funds, interest rates keep falling, and individuals in his area are very concerned about reaching some sort of "bottom" from which a recovery can start. This director would like the System to hold steady on its present course (as he perceives it) and permit the recovery to unfold. In his view, consumers could react in an adverse way to any further signs of monetary ease.