The reports in this Redbook are more optimistic than in earlier months. The consensus of directors, businessmen, bankers, and economists is that the economy will experience below potential growth in real output in the second half of 1970 and early 1971. There is general agreement that wage demands are not diminishing, despite an easing in labor markets and prospects for further increases in unemployment. Concern about inflation remains widespread, and the directors at one Reserve bank explicitly express the hope that the FOMC would permit only moderate growth in the money and credit aggregates over the near term.

Housing and consumer durables, especially household goods, are evidently recovering, but the capital goods sector is sluggish. Indications are that the metalworking machinery industry has not yet seen the bottom of its recent decline. Districts in which machine tool producers are concentrated (Boston, Cleveland, and Chicago) specifically mention depressed conditions in that industry. Six Reserve banks referred to the impact of cutbacks in defense and aerospace industries.

There are reports of selective price cutting at both the retail and the wholesale level and indications that price increases are becoming less prevalent. Cleveland reports price reductions in metal cutting machine tools and appliances; Minneapolis cites large price discounts to dealers by farm machinery producers; and Atlanta notes price weakening in some types of textile machinery. Philadelphia expresses concern about the likely effect of the corn blight on agricultural prices, but Chicago reports that the damage caused by the blight may have been exaggerated.

Four Reserve banks specifically mention the improved liquidity positions of commercial banks in recent weeks. There are also reports of improved loan to deposit ratios and deposit flows, some limited softening in the demand for business loans, and scattered reports that borrowers are expecting lower interest, rates in the months ahead.