When more than a hundred current and former chief executives of the nation’s leading corporations gathered here last week for their annual rite of spring at the Homestead resort, they had plenty of reasons to be gloomy about the economy. During the first quarter of the year, the nation’s GNP advanced at a disappointing 1.3% annual rate and the international trade balance of the United States continued to deteriorate, eating into the sales and profits of industries vulnerable to foreign competition.
But by the time the members of the Business Council left here Saturday afternoon, things were looking up. Not only did the warm weather cheer their spirits and help iron out the kinks in their tennis and golf games, but they also received personal reassurances from top Reagan Administration officials that the White House’s new tax bill will be a lot more generous to business than the original Treasury proposal prepared last year.
Encouraged by Senate Vote
At the same time, despite a generally downbeat report on the economic outlook, several top executives said they were encouraged by the decision in the Senate early Friday morning to approve a Republican-sponsored budget resolution designed to slash $56 billion off the federal deficit next year.
“I’m tremendously impressed by the Senate action on the deficit,” said Robert A. Beck, chairman of the Prudential Insurance Co. “It could be the first step to really getting our nation’s financial affairs in order. I don’t think there’s any turning back now.”
Perhaps of even more immediate importance to the business leaders, though, was a brief impromptu speech by Deputy Treasury Secretary Richard Darman, one of the key architects of the Administration’s revised tax overhaul proposal. Darman did not disclose details of the plan, which is expected to be released within about a week, but what he did say convinced many of the executives that the new plan eliminates some of the original tax reform features that business found so objectionable.
“I felt personally after the talk that the direction in which they were going was very sound,” said Reuben F. Mettler, chairman of TRW Inc. and head of the council.
And James D. Robinson, III, chairman of American Express Co., said that, despite worries that the proposal to remove the deduction for state and local taxes could harm his company’s home base of New York, he was “encouraged” by Darman’s remarks. Robinson added that Darman indicated the final features of the proposal will not be “wrapped up” until President Reagan has completed his review of the proposal this week.
Things to Worry About
Given all the discussion on taxes, the deficit and the economic outlook, concluded Howard P. Allen, chairman of Southern California Edison Co., “I’ve now got a better feeling about the next two years than I did when I went in.”
Nonetheless, the meeting still left the business leaders with a few things to worry about.
Their greatest concern was the continued strength of the dollar, which makes it extremely difficult for U.S. firms to compete against foreign manufacturers. Even such successful companies as IBM, which dominates the world computer market, are feeling the pinch.
John R. Opel, IBM’s chairman, said that, because of the rise in the dollar, his company’s foreign business must grow by at least 16% for IBM to break even on its non-U.S. sales.
The strong dollar and the weak trade situation that reflects it is the “single subject that dominates the concerns of the business community,” said Edmund T. Pratt Jr., chairman of Pfizer Inc., the world’s third-largest producer of pharmaceutical drugs.
Other issues also cropped up. Willard C. Butcher, chairman of Chase Manhattan Bank, argued that the nation’s savings and loan industry could be on the verge of a crisis similar to the panic that swept Ohio’s privately insured thrifts when a major state S&L; went under earlier this year. Butcher worried that the banks would be forced to bail out the savings institutions, saying, “I don’t think the banking industry will be able to turn its back on the thrift industry.”
And oil industry officials were worried that the price of oil might plummet if the shaky OPEC alliance weakened further.
“I don’t think a collapse in oil prices is likely,” said George Keller, chairman of Chevron Corp. of San Francisco. But he warned frankly that the industry’s “biggest problem” is that there “isn’t a market-clearing price anywhere near the present price level.” He added that the current average oil price of about $27 per barrel would have to fall below $20 a barrel before it would start to push marginal producers out of the business and that even such drastic actions might do little to stabilize oil prices in the short run.