Beige Book Report: New York
December 8, 1971
Assessment of the economic situation by the directors of the New York Bank and the Buffalo Branch and by other business leaders continues restrained. The feelings of uncertainty expressed last month concerning the effectiveness of Phase II in controlling inflation have not been dissipated, little headway has been made in reducing unemployment, business continues to pursue cautious inventory policies, and the demand for business loans does not suggest any quickening in the pace of business activity. Consumer spending over the holiday season is generally expected to exceed last year's levels, although there was no feeling that the trend in such outlays was pointing toward boom proportions.
With respect to Phase II, the Buffalo Branch directors thought that the program might result in some slowing down in the rate of inflation, but most were not optimistic regarding the chances of meeting the 2 1/2 per cent goal for prices. These directors felt that the Price Commission would be reasonably successful in holding the price line, particularly among larger companies, but that the Pay Board would have difficulties in controlling wage increases—in part because the Board in its initial operation was "bucking" against wage increases granted before the "freeze" period and not yet put into effect. Against this background of relatively more effective controls on prices than on wages, the vice president of Rochester's biggest firm predicted a profit squeeze, particularly for large companies. Among the New York Bank directors, one characterized Phase II as a "mixed up affair" and suggested that the only way price increases could be held at 2 1/2 per cent would be if "business is bad." The chairman of the board of a large manufacturing concern felt that the program had a 50-50 per cent chance of "crudely and clumsily" moderating the pace of inflation. (The same odds on the success of the program were also quoted by two Buffalo Branch directors.) He felt the program could not work for more than 12 to 18 months, but regarded this as better than nothing.
As to the unemployment picture, the directors that expressed an opinion on the subject generally saw little, if any, improvement. The improvement in some scattered areas was attributed to special circumstances. A Rochester businessman, a director of the New York Bank, not only saw no strengthening of the job situation, but referred to further layoffs by his own firm and by Life magazine. The chairman of the board of the large manufacturing concern reported that he was not aware of any significant turn for the better. Among the Buffalo Branch directors, only two saw some discernible improvement. The vice president of Rochester's largest firm saw a slight strengthening, which he linked to the completion by most employers of their efforts to reduce costs and improve productivity. The chairman of the board of a Buffalo bank reported some increase in employment in the Buffalo area associated with the partial resumption of steel production; however, he did not view this as indicating an overall upward trend in local employment, and characterized the local labor market as "still very weak."
In general, the directors saw no indication of a significant pickup in business inventory spending. The Rochester businessman "detected" continued caution in businesses' inventory policies. None of the Buffalo Branch directors saw any change in such policies, with the possible exception of retailers stocking up for the holiday season. The chairman of the board of the large manufacturing concern, however, felt that there had been a "slight" improvement in this sector. None of the directors reported a rise in business loan demand that might suggest a quickening of pace in business activity, although the banker directors at the Buffalo Branch reported a strong demand for mortgage loans.
With respect to consumer spending, opinions were mixed and on balance not particularly exuberant. Most of the Buffalo Branch directors described retail sales as "brisk" and running above last year, at least in dollar terms. Among the New York directors, the president of an upstate bank pointed to the strong performance of automobile sales, but felt that, apart from this sector, business remains "spotty." Most of the retailers who were contacted reported that business had begun to pick up in recent days, and they were expecting a good, if not spectacular, holiday season. The chairman of the board of a large Rochester department store, however, stated that his firm would be fortunate to equal last year's dollar volume during this Christmas season.