February 9, 1972
The general opinion of our directors is that the economy is expanding at a steady pace. Retail sales in particular set records during the past Christmas season. On the other hand, weaknesses persist in other areas; unemployment is still relatively high, and there is no evidence of any jump in business capital expenditures. With certain reservations, Phase II appears to be generally accepted by business and the public. Inflation no longer seems to be regarded as the threat it was earlier in 1971. This acceptance of Phase II, at least for the immediate future, combined with a steady expansion of the economy, points toward a better record in 1972.
Retail sales reached new highs in December. The increases were 8 to 12 percent above the levels of the previous year, and the gains were general across the District. Oregon, where 5 to 8 percent is the estimated gain, is an exception, but Oregon had a better record in the previous year than the other states. A large appliance chain in Utah and Idaho had sales 9.6 percent above those of 1970. Even in the Puget Sound area, where unemployment remains high, strong gains in retail sales up to 12 percent were reported. Most classes of goods seem to have shared in the higher sales; demand was equally strong for both high- and low-priced items. Similarly automobile sales have been good. Domestic makes are reported to be selling relatively better than imported cars.
Construction continues to be a source of strength, principally residential construction and government projects. Derived demand from construction is stimulating production and employment in the lumber and wood products industries in Oregon and Washington. On the other hand, prospects in some kinds of mining are less promising; for example, in Utah copper mines are reducing their workweek and further reductions are possible.
Last year was an excellent one for agriculture in most of the Twelfth District; reports from Washington, Oregon, and Idaho indicate a similar prospect for 1972. Cattle prices are high, and the demand for fruit is good. Wheat prices may be lower because of heavier planting plus the carryover due to the dock strike.
Bankers report a decline in lending rates. CD rates have also fallen and most banks, but not all, have cut the rate paid on passbook savings accounts. There has been no major change in loan demand.
Phase II has been well received as a means of stabilizing prices, and as yet there is no strong discontent with the controls. Two aspects are receiving some criticism which may become more serious. First of all, businessmen seem to feel that the wage increases allowed are more generous than those allowed for prices, and some think that the larger unions will attempt to obtain wage settlements above those permitted under the guidelines. If this occurs one result may be to squeeze profits and restrict investment. The second complaint is about the detailed administration of the guidelines, particularly the ambiguities in the rules and the possibility of an increasing number of exceptions. If confusion builds up, support of the controls may be eroded.
Overall, the consensus is that for the moment the price guidelines are being followed conscientiously by most businesses, and the wage restraints are being accepted by most workers even though their unions may be opposing controls on their wage contracts. Our directors have no general views as to how long Phase II will be needed or how successful it ultimately will be, but they support it at this time.