July 15, 1970
The overall economic picture in the Tenth District remains much the same as reported in the last Red Book, with construction strikes and reduced defense production restricting economic activity in specific areas. Firms participating in national markets are, of course, reflecting and sharing the sluggish performance of the national economy. A survey of Directors and a sample of purchasing managers revealed some evidence of favorable back-pressures on prices paid, particularly on volume orders and longer term contracts, an indication that some suppliers believe prices at least may not continue increasing as rapidly as in the past. In most instances, however, suppliers apparently are not yet engaging in any widespread price concessions or shading of prices from list.
A number of firms included in the survey were relatively large users of metal, especially steel and steel products, but also of copper and brass. Virtually all respondents reported that suppliers of steel were holding the line on recent price increases, and there was little expectation that this situation would change in the near future. Reports from copper users were mixed. For example, one reported that the situation for copper remained tight while another noted some reductions in list prices for particular copper products and an additional shading from list for certain items, such as brass strip. One relatively large steel user, whose overall business is off, has increased its relative use of foreign (Japanese) steel by holding that absolute amount steady and reducing its purchases of domestic steel. Although price differentials between Japanese and domestic steel are apparently diminishing (depending on type), this firm would take still more Japanese steel if it weren't bumping into the voluntary allotment ceilings.
No clear picture emerged from the responses of firms dealing in markets for chemicals and chemical products. One respondent reported chemicals prices going up faster in the last six months. Another noted that prices were lower on some items where suppliers were operating in industries where activity had slowed. A third noted that their request for bids on volume purchases had met with aggressive response from medium-size companies.
Particular industries have their own special situations and special problems. A Kansas City lumber company stated that not only was business here lousy because of the continuing construction strike, but sales to lumber dealers outside Kansas City also were bad, which they attributed to the general economic slowdown and to tight money conditions. They felt that lumber markets generally were weaker with mill prices down although freight charges have been rising. A printing concern reported their commercial printing business to be off somewhat, but their frozen food packages business doing well. According to this source, recently announced price increases for paper were rolled back, failing to hold because of the economic slowdown. But they expect these prices to go up again in the near future, and to hold at that time.
Specialized firms tied to other industries that are in trouble naturally find themselves in trouble. An electrical equipment company which is closely tied to the aircraft industry finds itself with significantly reduced sales, a situation expected to continue until overall improvement in economic activity is reflected in the aircraft industry. This firm sees no improvement in the prices they pay, although deliveries have improved. Another firm, specializing in production of sewage treatment facilities, attributes the slowdown in its business to the inability of local governments to purchase because of "tight money" and a reduced availability of Federal grants. The prices they pay for everything from janitor supplies to electrical equipment are still rising, and they report no luck in getting price concessions as suppliers continue to stick to list prices.
One thread of optimism regarding prices may be found running through the responses of several of the larger firms in recent months. These firms have observed some leveling off in the prices they pay, and (outside of steel) a little greater willingness by suppliers to negotiate on prices. For example, a large greeting card maker notes that more salesmen are calling in person, and appear to be scrambling for business. Volume discounts are more available, and suppliers seem to be more ready to deal because they are interested in keeping their own plants operating. A metals fabricator reports that, although metals prices remain firm, suppliers of other items are now willing to discuss prices and some price cuts can be negotiated.
A manufacturer of automatic merchandising equipment reports that sellers appear to be more interested now in annual contracts on which they will give a little better price in order to be assured a share of the business. No such concessions were available a year ago, but suppliers seem to be more receptive now. Buyers must work hard for price concessions, but they can be obtained. A similar viewpoint—that the situation calls for hard work by purchasing agents in resisting price increases—was expressed by a representative of a large manufacturer of electronic components and wired carrier equipment. In their view the general economic slowdown has made it possible for purchasing agents to negotiate prices in a better atmosphere and hopefully to do better in controlling price increases on the goods they buy.