February 9, 1972
Phase II policies, and competitive market forces operating in an economy performing well below its potential, are apparently combining to moderate the pace of rising prices. A survey of purchasing agents and managers in the Tenth District indicates that they perceive (1) a somewhat slower rate of price rise for materials they purchase, (2) generally good compliance by vendors with Phase II guidelines, and (3) the existence of market forces also acting to restrain price increases. Inventory policy is quite conservative, with little buildup of stocks now anticipated, almost regardless of industry. Among District banks, consumer installment lending and agricultural loan demand remain strong, while local business loan demand has shown little change in recent weeks from its basically weak position.
The view from the desks of purchasing managers in the Tenth District seems to be favorable to Phase II, with overall understanding and compliance felt to be generally good. Specific comments suggest that, as far as purchasing agents are concerned, vendors generally appear to be following the Phase II guidelines. Purchasing agents for a number of firms regularly review suppliers' prices for compliance, some require invoices to be stamped as in accordance with Price Commission rulings, and others report that notices of price rises are accompanied with word that they have been cleared with the Price Commission. Yet increasing prices continue to dominate the scene as the purchasing managers see it. Although they may report that they see no evidence of unauthorized price increases, there is also some muted criticism of extensive price rises that have received approval from the Price Commission. Finally, it should be noted that several purchasing managers expect further significant price increases in the months ahead.
There is, however, evidence of a positive influence of competition in restraining price increases. Although some purchasing agents have received "feelers" from vendors for price increases, these have often been withdrawn following challenge by the buyers. Other purchasing agents report that cash discounts are now somewhat more readily available than in 1971. With market conditions apparently tending to moderate the upward movement of prices, the overall situation (as given by the results of this survey) may be summarized in the comment from one purchasing manager: on balance, prices show "an inching forward (but) not the mass increases of a year ago." There are, of course, significant exceptions such as textiles (both cotton and rayon) whose rapidly rising prices were noted by two firms that are heavy users of textiles.
Reports are mixed concerning the nonprice conditions surrounding the sale of materials. Some individual buyers note that suppliers have maintained their services and have made no attempt to modify their contract terms. However, many suppliers now are often cautious about quoting prices very far into the future, and unwilling to enter into yearly contracts.
The continued performance of the economy below its potential is reflected in the widespread absence of delivery problems across several very different kinds of industries. At the same time, virtually none of the firms interviewed expect at this time to add substantially to inventories except on a seasonal basis. Major users of metals report they are still working down substantial carryovers of steel inventories. Reports of further inventory reductions, and no inventory buildup—sometimes in spite of increased sales expectations—came from a number of firms in widely disparate industries such as electrical cable and wiring manufacturing, sewage treatment equipment, metal building manufacturing, pesticide production, rubber belting makers, private aircraft manufacturing, and a large chain of drug-and-sundries stores. All in all, inventory policies are expected to be ''conservative this year."
The decline in the prime rate at New York banks has not been fully reflected in the lending rates of Tenth District banks. Of necessity, most banks must follow the New York prime movements on the accounts of their national customers. However, many District banks have established, or are attempting to establish, a "local" prime for their large regional borrowers. This rate is not only higher than the national rate, but has not been dropping as rapidly. Those banks that have not adopted this tactic are simply making fewer loans at prime.
Consumer loan rates have not been adjusted downward at all in most banks, and only moderately at the others.
Local business loan demand has not changed significantly in recent weeks from its basically weak position. Several banks report a slackening in the use of credit lines by national companies. Local real estate loan demand is showing some signs of tapering off, but remains strong. Especially strong agricultural loan demands have been experienced by Omaha, Denver, and Kansas City banks. Consumer installment lending continues at a high level.
An accelerated inflow of time deposits was noted by most area bankers. Several banks have suspended issuing consumer CD's beyond six months or a year, but this has not deterred the buildup of consumer time and savings deposits. Flows into large certificates of deposit have also picked up.