Carterphobia Looms on the Price Front

Carterphobia replaced supply and demand as the most important factor determining the prices of goods last week. Fearing that the President-elect intends to impose wage-price guidelines after his Jan. 20 inauguration, several big companies raised prices--while the raising seemed good--on a broad range of basic materials that go into consumer goods from refrigerators to shirts. U.S. Steel, Bethlehem and Republic, three of the largest producers, joined six other companies who earlier had imposed a 6% increase on sheet and strip steel, used in automobiles and appliances. Alcoa and Reynolds followed with rises of as much as 11% on aluminum sheet used to make beverage cans. Du Pont said it would increase the price of its Dacron polyester fiber up to 10%.

The increases lengthened the shadow cast over the wavering recovery by the week's other economic news. The Labor Department reported that wholesale prices were up six-tenths of a percent in November, a sign that higher prices to the consumer were on the way. Unemployment in November also jumped three-tenths of a percent to 8.1%, which meant that the number of people without jobs rose from 7.6 million in October to 7.8 million last month --the highest total in a year. The rate is uncomfortably close to the recession peak of 8.9% of May 1975, and it gave Carter and his advisers all the more reason to call for fiscal stimulus to perk up the economy. As Carter's press secretary, Jody Powell, summed up after a four-hour session last week involving the President-elect, his economic aides and several businessmen, "What had seemed to be bad, now seems to be worse."

There was a consensus at the meeting that stimulus should be in the form of a tax cut, with some increases in federal spending. But Carter and his aides agreed that there was not much the new Administration could do about the increases in steel prices. Carter expressed "concern" and sent messages to the heads of steel companies about the potential inflationary impact of their moves; Vice President-elect Walter Mondale publicly urged a rollback. Their words had no visible effect.

That left Carter with little choice. His advisers overwhelmingly agreed that the President-elect should try no further jawboning until Jan. 20. Carter at a late-week press conference contented himself with saying that he still considered "voluntary" wage-price guidelines a "good option." One recommendation from his advisers was that Carter should in effect subtract any price boosts that companies make now from what they would otherwise be allowed under any guidelines he proclaims next year. That might stop future increases, but would have no effect on the ones being posted now.

Late in the week President Ford's Council on Wage and Price Stability issued a 14-page report arguing that the steel increases were not justified by market demand. The rises, said COWPS Acting Director William Lilley III, were moves by steel men to "protect themselves against possible future wage and price controls." Some executives did not altogether deny that they were jumping the inaugural gun. Said U.S. Steel Chairman Edgar Speer: "The political situation is always a consideration. Let's not kid ourselves." Why, then, had Speer told stockholders three weeks ago that there would be no price increases until 1977? Said the chairman blandly: "I miscalculated."

The market for steel is soft, because of the wavering state of the nation's recovery. The industry is operating at only 67% of capacity. Normally, prices in that kind of a market go down rather than up--and nearly all steelmakers have been forced to discount prices as much as 10% below list to keep supplies moving in the face of weaker demand. But higher list prices still would return more money to the producers, even after discounts. It is money that they claim they need because of higher costs brought about in part by new union contracts. National Steel Chairman George Stinson says costs of producing flat-rolled steel have gone up more than 6% since June 1. Profits on sheet and strip steel, he says, have yet to recover from the price controls in effect from 1971 to 1974.

The same sluggishness prevails in the man-made fiber industry, although sales of Dacron--one of many fibers produced by Du Pont--continue strong. Du Pont still is suffering because of downturns in clothing sales and the housing slump. Chairman Irving Shapiro has predicted lower fourth-quarter earnings for the chemical giant. The industry, he says, has 30% more capacity than in 1973. Sales of aluminum are brisk, but a Reynolds official says that costs still are not being covered.

If the higher prices stick, a new round of inflation could begin filtering through the economy. But its ferocity could be tempered by generally weak demand. Car prices doubtless will be increased, but not until later next year; prices for the current lackluster model year already are up an average of $300. The real fear is that of a self-fulfilling prophecy, a concern that worry over what the Carter Administration might do could bring on a flurry of pre-emptive price hikes.

Carter himself took note of that at week's end and disavowed any thought of asking for outright price controls, even on a stand-by basis. Said the President-elect: "I believe that the constant threat of wage-price controls is sometimes a stimulation for unwarranted increases in wages and prices, and I want to remove that threat completely from business and labor." Yet, as COWPS Head Lilley warned the steel men, a flurry of price rises could lead to the controls "that business seeks to avoid."

This file is automatically generated by a robot program, so viewer discretion is required.