September 15, 1971
Support for the President's new economic program in the Tenth District is widespread among businessmen and consumers. At least one labor group has postponed bargaining sessions, and one union has taken a case to the United States District Court asking that employers be ordered to comply with a bargaining agreement reached last year calling for a wage increase on September 1. District bankers report no moves to increase interest rates. Aside from special factors, business loan demand remains weak.
The results of a survey of members of the boards of directors of the Federal Reserve Bank of Kansas City and its branches, and of other business in the Tenth District, indicate that the President's new economic program has been favorably received by both business and consumers. The psychological impact on both groups was described as excellent, and most parts of the program are generally receiving strong public support. In several instances, respondents voiced the view that they would have preferred to see the wage-price freeze instituted earlier, by from six months to two years.
There was wide agreement that the time period since the new program's beginning has been too short to permit an accurate overall assessment of its impact on economic activity. An important Omaha-based mechanical contractor noted that companies are apparently holding off on new plant and equipment spending until they see Congressional disposition of the proposed investment tax credit. If the Congress approves the credit, he expects increased activity in commercial and industrial construction in the Tenth District.
Increased consumer confidence, as a result of the new program, was cited by persons from several states as providing a stimulus to retail trade with some increases already apparent. Automobile sales are generally good. A survey of new car dealers in the Kansas City area showed that customers and dealers alike are confident that the Federal excise tax on new cars will be repealed on a retroactive basis. Although the dealers, like other businesses, were generally pleased with the wage-price freeze, some were apparently having difficulty in providing an attractive price on leftover 1971 models.
A representative of a large airline company reported that domestic air transport business on east-west routes continues to be weak. With revenues not reaching expectations, this airline is making further employment reductions in an attempt to keep its costs down. As a result of the wage-price freeze, the company's bargaining sessions with its 20,000 mechanics have been postponed. One special case of interest concerns a Kansas City International Brotherhood of Electrical Workers Local which filed suit in United States District Court asking that electrical contractors be ordered to comply with a collective bargaining agreement reached last year, under which the electricians were to have received on September 1 wage and fringe benefit increases totaling $1.00 per hour. The union maintains that the contractors will be receiving windfall gains, due to their bidding of contracts at prices which included the expected wage increase, and that this is an inequity that will not be righted after the freeze ends. The contract involved was settled by compulsory arbitration, without a strike and at wage increases described by the local's business manager as substantially below those received by other construction industry unions here. There has been no court decision yet in this case.
Deposit flows into Tenth District banks in the last half of August
have shown greater strength than the moderate pattern that
characterized July and early August. This was true for both demand
deposits and time deposits. Although a moderate increase occurred at
the larger banks in consumer type time and savings deposits in late
August, these accounts have shown virtually no net change at large
banks since midyear. Bankers queried on this point do not appear
concerned with this development, although some expressed relief that
market interest rates have declined since
mid-August. As in July,
Tenth District banks increased their holdings of large CDs in
August.
With regard to loan demand, residential mortgage and construction loans along with consumer installment loans remain the areas of strength in the Tenth District. Bankers contacted have detected no unusual increase in applications for consumer loans since mid-August. However, some are anticipating an increase and have stepped up their promotional activities since the announcement of the new economic program. Aside from special factors related to the international situation, business loan demand remains weak. The deterioration noted in the July report appears to have continued into late August. Respondents profess to anticipate some improvement, but are not overly optimistic.
Bankers in the Tenth District appear to support the new economic policies. There are no moves to increase interest charges on any loans. On the other hand, there appears to be no rush to lower interest charges. Most respondents are adopting a "wait-and-see" attitude toward the changed economic and financial situation.