November 10, 1971
The announcement of Phase II of President Nixon's new economic program apparently had little effect upon the thinking of the directors of this bank in terms of leading them to make substantial alterations in their outlook for economic activity in the region and nation. Of the 26 head office and branch directors surveyed, an overwhelming majority now expect economic activity in the nation to increase moderately over the next nine months. This was essentially the opinion of these businessmen, bankers, and educators prior to the President's outline of the control apparatus to be established under Phase II. The directors believe that these improving economic conditions in the nation will produce a moderate decline in the unemployment rate and be accompanied by moderately rising prices. Banking directors are now expecting a moderate fall in interest rates, while industrial directors anticipate no real growth in employment, plant and equipment expenditures, or inventory investment for their firms over the near term.
With respect to the national economy, almost three-fourths of the directors currently foresee a moderate gain in activity. Prior to the disclosure of Phase II, this view was held by slightly more than two-thirds of the directors. The announcement of the Phase II outline also produced little change in the directors' assessment of the unemployment rate. Nearly 60 percent of the directors are still of the opinion that the unemployment rate will fall moderately. As for the present outlook for prices, about two-thirds of the directors expect that moderate increases will occur, and the balance anticipate that prices will remain essentially unchanged. Until the Phase II program was made public, about one-fourth of the directors were expecting substantial increases in prices, half were anticipating moderate increases, and the rest were looking for little change. Thus, the consensus of directors, by a small majority, is that the creation of the Pay and Price Boards enhances the prospect for greater price stability.
The outlook for the regional economy was also largely unchanged by announcement of the Phase II outline. Eighteen of the directors currently foresee a moderate increase in activity in their local areas, as compared with 14 earlier. The announcement caused no alteration in the directors' assessment of the prospects for the unemployment rate in their local areas. Just over half were (and still are) anticipating a moderate decline in the unemployment rate. The directors believe that prices will edge upward slightly in the district. Earlier, directors were somewhat less optimistic about prices.
Commercial banking directors were also surveyed on their outlook for money and capital market rates and the commercial bank prime lending rate. Nine of the 14 commercial bankers now believe that short-term rates will decline moderately. Prior to the announcement of Phase II, ten of the respondents thought rates would remain essentially unchanged or increase moderately. Their evaluation of the prospects for long-term interest rates has also improved slightly. A clear majority now anticipate that capital market rates will either remain unchanged or decline moderately over the next nine months. Over the same period, half of the banking directors believe the prime lending rate at their banks will decrease moderately, 43 percent forecast no change, and 7 percent think that a moderate increase is in the offing.
Directors associated with nonbanking businesses were surveyed with respect to the outlook for their firms and industries. The announcement of Phase II caused virtually no change in the assessments of eight businessmen-directors as to their outlook for employment, prices, plant and equipment expenditures, and inventories over the next nine months. A majority believe that employment, plant and equipment expenditures, and inventories for their firms will remain unchanged, and that the prices of output of their firms will increase moderately. Three believe that Phase II will have no impact on their profits, four are of the opinion that profits will decline moderately, and only one anticipates that profits will be improved.
Other directors were asked to assess the reception of Phase II in their respective areas. Three out of the four directors in this category indicated that the program was very well received. With respect to the relative impact of the stabilization programs, two of the directors feel that Phase II favors labor, one director believes that the program benefits consumers, and one is of the opinion that business is favored.