June 14, 1972
According to directors of the head office and the Buffalo Branch and other business leaders, Phase II on balance has been relatively successful in curbing the wage-price spiral. New developments in Vietnam have had little or no impact on business and consumer confidence; the recent retail sales picture seemed somewhat less bright than last month's and businesses continue to follow very cautious inventory policies.
Concerning Phase II, respondents' current assessments varied somewhat but can perhaps best be summed up by the view of a head office director, chairman of the board of a New Jersey bank, who stated it had both its good and bad aspects and while a wage problem still existed, it was not as serious as last year's. Among other head office directors, a senior official of a large New York City bank gave the program "'A' for effort and 'B' for performance" and felt there would be a Phase III. The president of a large nonferrous metal-producing corporation thought the program was "hurting" corporate profits and thus making return on investment inadequate by controlling prices more effectively than wages. A senior official of a major metal container firm, however, felt Phase II has helped slow the inflationary spiral and, on the basis of his firm's experience, has been a definite factor in curbing the magnitude of wage increases. A Rochester department store official stated that but for controls, wages in his area would "skyrocket." Buffalo Branch directors generally agreed controls had been "reasonably" effective, and given the number of labor contracts expiring next year, such controls would probably be required for at least another year. Among other respondents, the chairman of a large nonbank financial firm characterized Phase II as a "brilliant stroke," but "regretfully" felt it to be but the "first step" toward more controls. A former senior official of this Bank, while not assessing the program as "brilliant," stated he was surprised by how well it was working.
According to most respondents, recent military developments in Vietnam have had little or no impact on business and consumer confidence. As will be noted below, however, some respondents mentioned the situation as a factor possibly slowing the gradual rise in retail sales that has been under way since last fall.
Indeed, the current consumer spending picture that emerges from the views expressed by respondents appears less bright than last month's. Buffalo Branch directors viewed retail sales in western New York as "holding steady," with only minor seasonal fluctuations. A leading Rochester retailer characterized the current retail sales picture in his area as "indifferent," and reported only "guarded" optimism among retailers regarding the outlook for the next few months. He felt consumers still lacked confidence, perhaps because of Vietnam or because of the wage controls. The container manufacturer also was not optimistic over near-term retail sales prospects for a number of reasons, including the uncertainties created by Vietnam, the effects of Phase II and the coming elections. He felt the adverse impact of these factors on consumer confidence being accentuated by the manner in which they have been handled by the news media. The president of a nationwide chain of variety stores stated consumer spending had not been "buoyant" this spring, and "the consumer is not carrying the economy yet." This feeling was shared by the president of a "popular priced" textile manufacturer who, however, looked for a gradual pickup over the balance of the year. A senior official of a high priced, high quality New York City department store reported his firm's business had been fairly good in May and had picked up further in early June. He expected a continued moderate increase in sales over the coming months, but felt consumers remained restrained and reported his firm was only cautiously optimistic.
This relatively lackluster consumer spending picture found its counterpart in reports of a continued lack of strength in business inventories. Some businessmen commented that with the help of computers to determine the minimum required, users and retailers did not wish to tie up working capital to carry excess inventories. The department store official mentioned above stated his firm's inventories were currently somewhat "heavier" than at this time last year, but they were not "crazy" over this situation and were actually trying to reduce them. The Rochester retailer reported stores in his area also were "continually" attempting to control inventories. The nonferrous metal producer reported no increase in copper inventories; the container manufacturer also saw no inventory increases in that industry. A New York City banker saw little evidence of strength in the inventory picture in his bank loan developments: while its total loans are well ahead of last year's, the increase has not been accounted for by "industrial and commercial" loans. Similar views were expressed by the New Jersey banker. And Buffalo Branch directors almost all felt there appeared to be no strengthening in business inventories. The only exception was the director of the upstate food processing firm who reported a buildup of food packaging material in that industry.