Letter to Leaders of the Steel Industry on the Need for Price Stability.
[Released September 7, 1961- Dated September 6, 1961]
I am taking this means of communicating to you, and to the chief executive officers of 11 other steel companies, my concern for stability of steel prices.
In the years preceding 1958, sharply rising steel prices and steel wages provided much of the impetus to a damaging inflation in the American economy. From the beginning of 1947 to the end of 1958, while industrial prices as a whole were rising 39 percent, steel mill product prices rose 120 percent. Steel wage rates also rose rapidly, causing employment costs per ton of steel to rise by about 85 percent. The international competitive position of American producers was impaired, and our balance of payments was weakened. Our iron and steel export prices from 1953 to 1958 rose 20 percent more than the export prices of our principal foreign competitors, and our share of world exports of iron and steel fell from 19 percent to 14 percent.
Since 1958, our price performance has substantially improved. Steel prices have been stable since 1958, as has the Wholesale Price Index. Industrial prices have not risen since 1959. The rise in consumer prices has been held within tolerable limits.
This record of price stability was purchased, however, at the cost of persistent unemployment and underutilized productive capacity. In the steel industry itself, the rate of utilization of capacity for the last three years has averaged under 65 percent. In consequence of our recent price experience, many persons have come to the conclusion that the United States can achieve price stability only by maintaining a substantial margin of unemployment and excess capacity and by accepting a slow rate of economic growth. This is a counsel of despair which we cannot accept.
For the last three years, we have not had to face the test of price behavior in a high-employment economy. This is the test which now lies ahead.
Under the collective bargaining contract signed in January 1960, steel industry wages and other employment costs will increase at the end of this month. The amount of the increase in employment costs per man-hour is difficult to measure in advance with precision. But it appears almost certain to be outweighed by the advance in productivity resulting from a combination of two factors-the steady long-term growth of output per man-hour, and the increasing rate of operations foreseen for the steel industry in the months ahead.
The Council of Economic Advisers has supplied me with estimates of steel industry profits after October 1, calculated on an assumption that prices are not increased. These estimates indicate that the steel industry will be earning 7 to 9 percent on net worth after taxes if the rate of operations is around 70 percent; 10 to 12 percent if the operating rate is at 80 percent; and 13 to 15 percent if the operating rate is at 90 percent. The steel industry, in short, can look forward to good profits without an increase in prices.
The owners of the iron and steel companies have fared well in recent years. Since 1947, iron and steel common stock prices have risen 393 percent; this is a much better performance than common stock prices in general. Likewise, dividends on iron and steel securities have risen from $235 million in 1947 to $648 million in the recession year of 1960, an increase of 176 percent.
A steel price increase in the months ahead could shatter the price stability which the country has now enjoyed for some time. In a letter to me on the impact of steel prices on defense costs, Secretary of Defense McNamara states: "A steel price increase of the order of $4 to $5 a ton, once its effects fanned out through the economy, would probably raise military procurement costs by $500 million per year or more."
Steel is a bellwether, as well as a major element in industrial costs. A rise in steel prices would force price increases in many industries and invite price increases in others. The consequences of such a development might be so grave--particularly on our balance of payments position--as to require the adoption of restrictive monetary and fiscal measures which would retard recovery, hold unemployment at intolerable levels, and hamper growth. The depressing effect of such measures on the steel industry's rate of operations might in the long run more than offset the profit-raising effect of a price increase.
In emphasizing the vital importance of steel prices to the strength of our economy, I do not wish to minimize the urgency of preventing inflationary movements in steel wages. I recognize, too, that the steel industry, by absorbing increases in employment costs since 1958, has demonstrated a will to halt the price-wage spiral in steel. If the industry were now to forego a price increase, it would enter collective bargaining negotiations next spring with a record of three and a half years of price stability. It would dearly then be the turn of the labor representatives to limit wage demands to a level consistent with continued price stability. The moral position of the steel industry next spring--and its claim to the support of public opinion--will be strengthened by the exercise of price restraint now.
I have written you at length because I believe that price stability in steel is essential if we are to maintain the economic vitality necessary to face confidently the trials and crises of our perilous world. Our economy has flourished in freedom; let us now demonstrate again that the responsible exercise of economic freedom serves the national welfare.
I am sure that the owners and managers of our nation's major steel companies share my conviction that the clear call of national interest must be heeded.
JOHN F. KENNEDY
Note: This is the text of identical letters addressed to the following steel officials: Logan T. Johnston, President, Armco Steel Corporation; Arthur B. Homer, Chairman of the Board, Bethlehem Steel Corporation; Alwin F. Franz, President, Colorado Fuel and Iron Corporation; Joseph L. Block, Chairman of the Board, Inland Steel Company; Avery C. Adams, Chairman of the Board, Jones and Laughlin Steel Corporation; J. L. Ashby, President, Kaiser Steel Corporation; Merlin A. Cudlip, President, McLouth Steel Corporation; Thomas E. Millsop, Chairman of the Board, National Steel Corporation; Thomas F. Patton, President, Republic Steel Corporation; Roger M. Binugh, Chairman of the Board, United States Steel Corporation; William A. Steele, Chairman of the Board, Wheeling Steel Corporation; and J. L. Mauthe, Chairman of the Board, Youngstown Sheet and Tube Company.
Several of the replies to the President's letter were made public by the White House on September
See also Item 366.
John F. Kennedy, Letter to Leaders of the Steel Industry on the Need for Price Stability. Online by Gerhard Peters and John T. Woolley, The American Presidency Project https://www.presidency.ucsb.edu/node/235582