September 15, 1971
Comments by the directors of the New York Bank and the Buffalo
branch and conversations with some large retailers indicate that
initial reaction to the President's new economic program has been
favorable and that there is cautious optimism regarding the future.
An improvement in consumer spending, which had started to manifest
itself even before August 15, was reported as the brightest current
development, but doubts were expressed about any
near-term stimulus
from the proposed investment tax credit. Most directors thought
there would be good compliance with the wage-price freeze during
Phase One, but some anticipated there would be problems if the
freeze were extended.
Consumer spending reportedly has shown definite improvement compared with previous months. One of the directors, associated with a Rochester department store, "sensed" that consumers approved of the President's program; he noted that since August 15 the pickup in August retail sales had become more pronounced. The chairman of the board of a large New York City bank and the president of an upstate bank also thought consumer confidence had improved, but the latter director commented that it remained to be seen to what extent, and when, this improvement would be reflected in increased consumer outlays. The two retailers who were contacted by telephone, who have stores nationwide, reported that business had been quite good throughout August and that the President's announcement seemed to have had only little effect in increasing consumer demand further. They observed that other department store officials with whom they had discussed the matter had had this same experience. The retailers indicated they were quite optimistic about the forthcoming holiday season.
The directors thought that although business confidence may have been strengthened somewhat by the President's new program, there was little likelihood that the investment tax credit would bring a significant spurt in capital outlays over the near term, primarily because of the current low rates of utilization of existing plant and equipment. Directors in Buffalo thought that for those businesses that had already made capital spending plans, "the reinstatement of the tax credit would be a windfall", while for those who "had been on the fence" concerning a project, passage of the proposed legislation "might trigger a decision to move ahead". One of the New York Bank directors noted that "much of the American-made machinery and equipment affected by the tax credit uses foreign-made parts". However, the chairman of the board of a large New York City bank believed the tax credit would promote capital spending "ultimately", and another director thought the proposed credit would stimulate those investments that would "save labor costs and cut operating expenditures".
Most directors thought there would be little, if any, erosion of compliance with the wage-price freeze over the ninety-day period. Buffalo branch directors observed that the short period involved and the fact that noncompliance would stand out made the current freeze self-enforcing. Several of these directors, however, looked for enforcement problems if the freeze were extended, while the chairman of the board of a large New York City bank felt that "a myriad of administrative problems would appear" even during Phase One. Another director, the president of a nationwide manufacturing concern, expects an erosion in compliance "as time goes on", and the president of an upstate bank said he believes some people are "trying to find ways to secure exceptions to the freeze".
Most respondents to a survey of six large New York City banks indicated that some unexpected growth in demand for business credit had developed at their institutions in recent weeks over and above the increases that clearly reflected post-August 15 developments in the foreign exchange markets, but the majority had no explanation for this apparent strength or declared their particular bank's experience was related to something unique. The few explanations that were offered focused primarily on inventory building. "Prudent businessmen feel they should get in their stocks while the freeze is on. "Distributors are expecting a very strong Christmas." "Perhaps there is some inventorying in anticipation of a longshoremen's strike on the East and Gulf Coasts." Nonetheless, probably a major part of the huge increase in loans to wholesalers, which constituted the biggest rise, was attributable to borrowings made immediately prior to the flotation of the yen by Japanese trading concerns resident in the United States.