November 10, 1971
Based on a recent Research Department survey of 21 business leaders and other contacts, support for the new economic program remains strong among businessmen and labor rank and file. However, there are doubts about the efficacy of Phase II because top labor officials may not cooperate. The surveyed businessmen believe that prices will increase moderately after November 13. They further indicated that the President's program has not yet resulted in any significant changes in capital spending plans and that consumer sentiment has improved only slightly since August. Evidently, no switching from foreign to domestic suppliers has yet occurred because of foreign exchange developments.
Survey respondents report nearly universal support among businessmen for the President's program. However, many businessmen feel that the program will be undermined by an inability of the Pay Board to control wage increases. Some businessmen expect price controls to be more effective than wage controls; many others are uncertain about how they will be affected by Phase II controls. The freeze has evidently caused considerable inequities that will be very difficult for Phase II controllers to rectify. A fear was expressed that a new bureaucracy may result from the program.
Price expectations differ considerably among businessmen, but, on average, price increases after November are expected to be more moderate than before the freeze. A few respondents expect inflation to take up where it left off, mainly because they do not expect the Pay Board to be effective. More respondents expect scattered price increases and a definite reduction in inflation. A paper company executive reports that a scheduled $8 a ton increase in newsprint prices has been postponed until at least January 1, and that the increase will then probably be less than $8. A sales executive for a steel firm reports that some producers with a high percentage of flat rolled steel in their product mix will be in trouble if scheduled price increases on these products are not allowed to go into effect after the freeze. The cotton textile industry is reportedly not accepting new orders because increases in the price of cotton during the freeze have increased costs that, temporarily at least, cannot be passed along to buyers.
Apparently, the President's program has as yet had little effect on capital spending plans. Most respondents report no change in investment plans since the beginning of Phase I. However, a telephone company has increased its estimates of business activity in 1972 and 1973, and increased its capital spending plans accordingly. An electric utility stepped up its purchases of needed autos and trucks just to take advantage of the freeze. An auto dealer reports that he is going ahead with a previously postponed facility, evidently because of the surge in auto sales.
A majority of those surveyed report little change in consumer attitudes since the freeze. However, production of consumer appliances has reportedly been increased in anticipation of improved sales, and consumer demand for textile products has increased. Textile inventories have been reduced substantially at mills and at the wholesale and retail levels, and a good expansion of sales is anticipated "after uncertainties are removed."
Foreign exchange developments apparently have not as yet caused much switching from foreign to domestic suppliers. The price spread between foreign and domestic steel has decreased, but no actual switching has occurred yet. Cotton exports have been encouraged by foreign exchange developments, and this has added to upward pressure on the price domestically. A port official reports that the floating exchange rates have caused only moderate difficulties. A jewelry store executive reports that diamond importers are temporarily holding current stocks off the market in anticipation of price increases later. An importer has reportedly shelved plans for a major expansion of facilities because of the 10 percent import surcharge. The director of a state board of industry and trade reports that foreign firms have increased inquiries about plant sites and joint ventures, as a result of foreign exchange developments and the import surcharge.