Beige Book Report: Minneapolis
June 17, 1970
Business and labor leaders in the Ninth Federal Reserve District are very concerned about the persistence of inflationary pressures and seem to be willing to try almost anything, including wage-price guidelines, to control the problem. District investment firms are encountering financial difficulties and, as a result, have had to alter their operations. Businesses are continuing to cut back their investment plans, and scattered instances suggest that consumers may be changing their consumption patterns because of the uncertainty regarding the state of the economy.
During the go-around at the last meeting of the Board of Directors of the Federal Reserve Bank of Minneapolis, the directors were asked whether or not business and union leaders in their local areas would support some kind of incomes policy or wage-price guidelines. They felt that people are becoming increasingly concerned about inflation and are becoming progressively disenchanted with traditional restrictive monetary and fiscal policies. As a result, the directors felt that guidelines would probably be publicly unpopular but in many cases would be privately welcomed. In general, they thought that people would prefer to see voluntary controls imposed rather than new legislation, and that businessmen are more in favor of guidelines than labor leaders. The directors cited a number of instances where business leaders have voiced approval of some kind of guidelines. The directors also cited cases where labor leaders did not want to be quoted but were concerned with the large settlements which have been won by unions in recent labor disputes. Because of these large settlements, rank and file members are expecting large wage increases and union leaders are afraid to ask for less. Guidelines would give them an excuse to argue for lower wage settlements.
The financial difficulties being experienced by Wall Street investment bankers, mutual funds, and securities dealers are apparently also being encountered by Ninth District investment firms. A telephone poll of two leading local investment banking firms explored the implications of these problems in three areas of their operations. First, operating staffs of securities brokers have been cut back about 15 to 20 percent in the last year. These cutbacks, however, were attributed to the decline in volume of trading rather than to the current financial crisis. In general, sales staffs have been reduced, with the declines occurring in some instances through attrition rather than through layoffs. Second, a securities brokerage house is closing one of its suburban offices because of the lack of volume. In addition, a director was aware of a mutual fund in Billings, Montana, which has recently closed down. Third, merger activity among securities brokers appears to be on the upswing. Both investment bankers who were contacted reported that they had been approached by a number of smaller firms in the last three months. Although only two mergers have been consummated, these firms felt that additional mergers could take place in the not-too-distant future.
Scattered pieces of information continue to show that District manufacturers are cutting back their capital expenditure plans. Two directors cited cases where distributors of heavy equipment to agriculture and construction firms have experienced sharp declines in sales during the past month or so. It was also reported that a large retail firm headquartered in the twin cities has cut back its capital appropriations by about 50 percent. One other director stated that General Motors has scheduled huge cutbacks in capital spending, with each division being asked to curtail capital expenditures.
A number of examples have come to light which suggest that consumers are changing their consumption patterns. A Minneapolis-based undergarment manufacturer reports that its sales are 10 to 15 percent below last year's levels. They attribute their poor sales performance this year to the slowdown in department store sales and feel that consumers are taking their business to lower priced stores. Automobile dealers in the twin cities report a downturn in auto sales which has been centered primarily in higher priced automobiles and that sales of basic models are holding up fairly well. In addition, repair shops for both automobiles and other durable goods are experiencing sharp increases in business, which suggest that consumers are tending to hold off on major durables purchases. A telephone pol1 of resorts around the District reveals that resort owners are experiencing a number of cancellations, although accommodations at Yellowstone and Glacier National Parks are still very tight. All the resort owners who were contacted said that they could accept reservations for any time this summer.