September 15, 1971
President Nixon's new program for economic stabilization improves the prospects for the economy of the Southwest, in the opinion of past and present nonbank directors of this Bank and its branches. Most expect moderate increases in economic activity and employment for the remainder of this year and the first half of 1972, coupled with a lower rate of increase in retail prices. However, some believe that greater price stability will be attained only if some kind of guidelines program follows the ninety-day freeze on wages and prices. Most felt that planned plant and equipment expenditures, inventory investment, and employment in their firms would not be greatly influenced by the President's program within the next nine months. The floating of the dollar is expected to have a small favorable impact on the export sales of the firms of these directors, while the cost of imported materials and supplies used by the respondent's firms is anticipated to increase moderately.
Although two thirds of the directors expect that the President's
program will increase demand for their firms' products over the next
nine months, only a minority feel that capital expenditures,
inventory investment, and employment in their firms will be
materially increased as a result. About a third of the respondents
think that the proposed investment tax credit will increase planned
plant and equipment expenditures through mid-1972. And about one
half of those expecting an increase indicate that the rise would be
a net addition to already planned expenditures. Others state that
the increase should be attributable mainly to a moving ahead of
expenditures planned for some later time. Close to
two-thirds of the
directors do not anticipate that the proposed economic package will
affect their planned inventory investment. Also only about a third
feel it will increase employment in their firms over this period.
The President's freeze is apparently having a significant impact on both the wages and prices of the respondents' firms. When the freeze was announced, two thirds of the firms had planned wage increases, while half were anticipating raising their prices. These planned wage increases would have averaged almost 7 percent, while anticipated price advances would have totaled almost 4 percent. If the wage-price freeze ends after the ninety-day period, and no other limitations are imposed, nearly half believe that their firms would increase wages and prices.
On balance, President Nixon's economic package is expected to have little impact on the profits of the firms of the directors through mid-1972. Forty percent feel there will be no impact on profits, while 30 percent expect profits to rise as a result, and 30 percent anticipate they will fall.
The floating of the dollar in the international exchange markets affected only about half of the respondents' firms. For those that were affected, only a few anticipate that their export sales and foreign investments will increase over the next nine months. On the other hand, most anticipate that the cost of imported materials and supplies will rise moderately. In the current situation of the floating of the dollar, a majority of those directors' firms affected indicate that their firms absorb the foreign exchange risk on both exports and imports. In a few cases, the foreign exchange risk is shifted to the trading partner, and in one case the risk is shared by the director's firm and the trading partner.
District data indicate that recent economic conditions were sluggish. Preliminary estimates indicate that the seasonally adjusted Texas industrial production index fell slightly in July, with all sectors sharing in the drop except utilities, which remained unchanged. Durable goods manufacturing was off somewhat from the month before; the only industry group in durable goods showing a significant increase over the previous month was that producing lumber and wood products. In nondurables manufacturing, textile mills showed the only significant gain. Registrations of new passenger automobiles in four major reporting areas in Texas were 12 percent lower in July than in June. Department store sales were 4 percent higher in the four-week period ended August 28 than in the corresponding period a year before. Total nonagricultural wage and salary employment fell slightly in July, interrupting a fairly slow but continuous rise since January. Oil allowables for both Texas and Louisiana have been cut for September. This was the fifth consecutive monthly drop for Texas. Agricultural conditions in the Eleventh District are generally improved as rainfall has increased the production outlook for several crops and offered relief to livestock. However, the rains now present some threat to crops, especially cotton and sorghum, as harvest is being slowed and some quality damage noted.