July 21, 1971
The opinions expressed recently by Second District Federal Reserve Bank directors seemed to reflect some renewed doubts regarding the strength of the economic recovery. The directors in general foresaw no near-term improvement in the unemployment picture—indeed a few expected further weakening—and some felt that additional disruptive strikes were in the offing. On the other hand, the outlook for consumer spending and residential construction remains good; no significant changes in the trends in these sectors were thought to have occurred in the recent past. Most of the directors felt that a widespread lack of confidence among both businessmen and consumers is a major factor in the disappointingly slow rate of economic recovery.
Concerning the unemployment situation, the directors felt the continuing efforts of businessmen to cut back costs made it unlikely that a significant reduction of unemployment would be achieved in the coming months. The chairman of the board of a large New York City bank said he expected that his firm would have a smaller staff at the end of 1971 than it had earlier in the year, and felt that other financial institutions-the city's strongest employers—also would not contribute much support for the local job market this year. The president of a nationwide manufacturer of plumbing and related products felt that the wage-cost squeeze was forcing industry to cut back on spending and employment. The Buffalo Branch directors agreed that labor markets in their locality generally continue to experience an oversupply of persons seeking a limited number of job openings, and said the permanent closing of some plants has aggravated the situation. Several directors also referred to the fiscal difficulties of state and local governments as a factor inhibiting hiring by these bodies. One exception noted by an upstate manufacturer was that employment in the automotive parts industry has been holding up well.
This rather dim unemployment picture, to some extent, conditioned the directors' views with respect to potential labor strikes. Most directors agreed that further strikes could be expected, since labor leaders felt obliged to attempt to gain at least the same benefits for their members that other unions have received in the recent past. This view was most forcefully advanced by the chairman of the board of the large New York City bank and by the president of the plumbing concern. Upstate directors, on the other hand, tended to see a reduction in labor disputes. Some of the Buffalo directors, for example, felt that there would. be no steel strike because steel workers were becoming aware of both the worsening competitive position of U. S. steel in world markets and the fact that strike-hedge inventory-building by steel users would minimize the potential harm of a strike to the steel companies. Moreover, the other Buffalo directors who did believe a strike was in the offing thought it would be a short one. All of the Buffalo directors felt that the settlement would be somewhat less generous than that obtained in recent other major industrial wage agreements, although most felt that the settlement could not depart significantly from those recently negotiated in the aluminum and can industries.
There seemed to be little change in recent weeks in the directors' assessments of the outlook for consumer spending and residential construction. Outlays for consumer goods were generally reported to be running at a level well ahead of last year, but have not as yet reached "boom" proportions. In regard to residential construction, the directors generally felt that activity in this sector was running at a satisfactory level, or would do so soon. The chairman of the board of a large Rochester department store noted that political problems "sometimes interfere with low- and middle-income housing." The president of an upstate bank felt. that home-building activity in his area was strong, but would be stronger except for the resistance of local officials to large projects, and the lack of adequate sewage, highway, and school facilities.
Most of the Second District directors stressed the lack of confidence among both business and consumers as a major factor inhibiting the economic recovery. This feeling was perhaps most forthrightly expressed by the vice president of Rochester's largest firm, who said: "businessmen and consumers had lost confidence in the Government's ability to design and execute programs which would lead the economy back to health along with a reduction in the rate of inflation." He attributed this feeling in part to a "lack of credibility in the economic statistics and forecasts developed by the Federal Government." Another upstate director described the situation as a "nationwide stagnation of enthusiasm."