Beige Book Report: New York
December 9, 1970
Opinions expressed by Federal Reserve Bank Directors and other business leaders point to relatively good, albeit not spectacular, retail sales over the Christmas season, but little change in the sluggish capital expenditure picture that has emerged in recent months. Continued strong upward pressures on wages and prices are widely expected, and while most of those questioned were less than enthusiastic over the use of wage and price controls, many felt the need for additional Administration action in this area. The Directors felt that liquidity remained a problem for certain firms.
With respect to consumer spending, retail sales in the Rochester area, which last month had been characterized as "terrible", were now reported by the President of a department store in that city to be better than during past Christmases. The President of an Ithaca, N.Y. bank found retail sales in that city to be reasonably good, with four out of five businesses doing better than expected, while the President of another upstate bank saw sales in his area as "looking good". The President of a large New York City department store, who in recent months had been more optimistic than other retailers contacted, was somewhat less sanguine this month. His firm's business had been very good in September and October, but flattened out in November. Nevertheless, he did feel that "the best part of the game was still ahead", and that business would gradually pick up in December. He was "certain" that the dollar value of his firm sales over the Christmas season would exceed last year's. He was not as certain, however, that the increase in dollar terms would be large enough to offset the rise in prices.
Little new information on the plant and equipment picture emerged from the discussions, with the outlook about unchanged from last month—namely, some cutback from original plans, and an increased proportion of outlays going into environmental control. The Chairman of the country's largest manufacturer of electrical equipment estimated on the basis of orders for capital goods on his firm's books that plant and equipment outlays would increase nationwide by only two or three per cent next year, with the entire increase due to price inflation.
Sentiments regarding prices and wages developments were fairly gloomy. It was felt generally that the General Motors wage settlement would have a strong impact on wage demands and settlements in other areas. The Chairman of the electrical equipment firm saw nothing in sight to keep unit labor costs from rising sharply in the next two or three years, and he believes that the rise in productivity this year was a ''one shot deal'' and won't be repeated, and that the country has "built-in inflation". Concern over the size of wage settlements and over continued upward pressures on prices was also expressed by several directors and other business leaders.
Most directors and other business leaders were less than enthusiastic over the use of wage and price controls. However, several were relatively open minded toward this approach, while many of the respondents felt additional action on the part of the Administration to limit further wage and price increases was needed. The Chairman of the electrical equipment manufacturer reported that the Business Council, which he headed until recently, had made it clear to President Nixon that Council Members don't want wage and price controls because they are convinced they will never work. One director, however, commented that the time was approaching when wage and price controls must be adopted, and another director felt that, while controls would not be workable over any extended period, such controls might have a useful psychological effect for a short period. A partner in large investment banking firm noted that incomes policies have failed all over the world where they have been tried, but felt it was up to the United States to seek to find a solution to the problem of full employment without inflation.
The directors in general felt that liquidity was still a problem for certain firms. Two upstate bankers stated it was a serious problem for the marginal, smaller companies. The Chairman of the Board of a large manufacturing concern felt the problem was "spotty" but also affected some sizable companies, while another director stated that liquidity problems were "serious" in the airline, aerospace, and electronic industries and that it would be 18 months before some companies in these industries could "see daylight".