Masonry Magazine February 1970 Page. 16
Washington Wire
Reasons. For one thing, inflationary psychology has not been entirely killed; it could be refueled quickly by too much credit too soon. For another thing, demand for money will remain huge from corporations, state-local government, home-building.
The slowdown may be curbing business plans to spend for new plant. A new sampling of sentiment in New England reveals quite a sharp pull-back in the outlay increases projected from 1969 to 1970 more like 2% than 10%. Declining profits (which reduce retained earnings available for expansion) and record interest rates (which can cut into a new plant's profitability) account for the reappraisals... and could lead to even further retrenchment.
Government economists think they see a slowing in the price surge though the signs are still faint. For one thing, they note that the rise in the Consumer Price Index averaged 5.9% a year during 1969's second half, down from 6.4% in the first. This implies the rate of rise has topped out.
But there seems little hope for a breather on labor costs in 1970. Under pressure from members, union leaders will be out to win wage raises that match current increases in the cost of living... plus future ones, too. The fact that major contracts due to reach the negotiating table will cover 5 million workers in 1970-twice 1969-means average labor costs will rise more rapidly... at a time when it may be harder to recoup via higher prices.
The Nixon team has completed its takeover of agencies that regulate so many areas of business activity. Republican chairmen are now in charge. These men have begun to reorganize, modernize, and bring in fresh new blood. They tend to be more conservative, more sympathetic to business viewpoints.
Now, they are turning to key issues piled up over the years.
-At ICC: railroad mergers, passenger service, and moving.
-At SEC: broker commissions and regulation of mutual-funds.
-At FPC: shortages of natural gas and electric power.
-At CAB: allocating ocean routes and improving airline profits.
-At FCC: CATV, telephone rates, satellites, computer use.
-At FTC: conglomerates, warranties, and "free" credit cards.
The merger movement is likely to slow up at least a little in 1970. The troubles that the conglomerates have run into over the last year or so have discouraged those who want to buy a firm, plus the potential sellers. The fact that profits of many take-over candidates are declining these days has dampened the enthusiasm to merger that many businessmen had once felt. Threats of legislative curbs have also served as a restraint on the trend.
The war on pollution must solve problems of tactics and strategy before it can get rolling and bring results. Everyone wants to take action. But there are sharp divisions over various aspects that must be reconciled. This is going to take more time than has been suggested by all the talking. Here are some of the differences that could delay progress:
-The amount of money to be spent is crucial. The Democrats want to spend more than the GOP and ask less of the states.
-Various committees of Congress will fight each other hard, to see which have permanent jurisdiction over the field.
-The political parties will be jockeying to see who gets the most credit from a public aroused about the environment. It could well be 1971 before the big campaign is launched.
Relaxation of restrictions on foreign investment by U.S. companies may be authorized by the government at some point over the next few months. Much will depend on the trend in the balance of payments. If the slowdown in the economy reduces demand for imports-thus lifting the trade surplus the President will permit American firms to put more into overseas plants.
Two approaches will be considered, singly or in combination:
-Lifting the percent of foreign profits that can be invested.
-Raising the exemption from regulation from the present $1 million in profits to $2 million-which would free half the 600 companies that are now subject to the investment limits.
The major issues of the 1970 Congressional elections now seem clear. They were dramatized by the President's veto of the HEW appropriations bill and the Democrats' response to it. Issue Number One will be inflation; the Republicans will try to prove that the other party is "soft" on the issue. The second key issue will be the setting of priorities; the Democrats will attack the GOP for over-emphasizing defense spending to the neglect of such things as education, health, and the festering problems of the big cities.
The outcome of the voting may depend on whether the business cooling slows inflation. If so, the GOP will lose its main issue. If inflation persists, Republicans will have an edge.
The President plans a big role in the campaign. He wants to take control of Congress. With his prestige so high, he will be a vital factor in helping his party win. His only danger: A serious set-back in Viet Nam.
masonry
February, 1970