Opinions expressed by bankers and businessmen in the twelve Federal Reserve Districts indicate that the more pessimistic economic outlook which had emerged last month was currently still in evidence, with some brighter
spots—notably in residential housing—appearing here and there. Economic recovery was generally expected to be sluggish and more prolonged than had been anticipated earlier. Holiday retail sales so far were characterized as only fair to disappointing. Most manufacturers contacted reported unchanged or somewhat lower output and orders than last month, and in general looked for only a moderate pickup in the coming months. Concomitantly, there were further increases in unemployment in most Districts and additional reports of trimming of plant and equipment outlays. At the same time, it was generally felt that little or no progress was being achieved in curbing inflation, and sentiments for the adoption of an incomes policy or for other additional action by the Administration appeared to be growing.

A cautious consumer attitude remains in evidence. With the holiday season getting under way, sales have begun to pick up. Most retailers, however, look for business to be about the same as last year—in some instances worse and in others significantly better. Thus, reflecting the difficulties in the aerospace and timber industries, sales in the Seattle area were particularly depressed. Virtually all retailers contacted in the Boston District reported very disappointing Christmas sales, while in Philadelphia the physical volume of sales in large department stores were down 10 percent from a year ago. On the other hand, retailers in some states—Colorado, Michigan, Wisconsin, Montana—look for a significant improvement over last year's holiday sales. As in previous months, "down grading", and "bargain hunting"remained in evidence, and higher priced items continued to perform poorly. Industrial production remains weak.

Most manufacturers contacted reported no change or some decline as compared with last month in output, sales, and new orders and, in general, look for only a moderate pickup in the coming months. Further slowdowns were evident in the machine tools, electronic, and business equipment industries (notably in the Boston and Chicago Districts) and in the aerospace and timber industries (San Francisco), but the weakness also extended to other industries. Some rebound in December was expected in the Cleveland and Chicago Districts, which had been particularly hard hit by the General Motors strike. However, reports from the steel industry in the Cleveland District reveal that the release of steel stockpiled for General Motors has so far been smaller than expected. Moreover, those steel economists that were contacted felt that inventory stockpiling by steel users against the possibility of a strike in the steel industry next year would begin later than during previous strike-hedging periods, with the "big push" coming only late in the pre-strike period. The Minneapolis Bank's industrial expectation survey, for the first time in 13 surveys, showed a year-to-year decline in District manufacturing sales. On the other hand, considerable optimism was expressed in the Chicago District with respect to prospects for all major classes of consumer durable goods; capital goods producers in that District, however, were generally more apprehensive than a few months ago.

The slowdown in industrial production was reflected in a further weakening in the employment picture. Further layoffs and short time were evident in most Districts, with areas where particularly depressed industries—such as the aerospace, timber, machine tool, and certain nonferrous metal industries—loom large in the local economy being particularly hard hit. Unemployment among white collar workers and professionals continues to rise. For example, a professional engineering society in the Minneapolis District reported that 10 percent of the engineers in the Twin Cities were out of work. On the other hand, the rate of decline in employment was reported to be slowing down in the Richmond District, while reports from the Chicago Bank suggest little further change, with a rise in employment in consumer durable goods and construction industries offsetting potential layoffs in other sectors.

With respect to plant and equipment outlays, there was some evidence of further trimming or stretching-out of original plans. However, since manufacturers have now been cutting back on their original planned capital outlays for several months, the rate of reduction appears to be tapering off. On balance, the outlook is for little change in such outlays from current levels over the next six months.

One bright spot in the overall economic picture was provided by actual and prospective developments in residential construction, with most bankers and businessmen expecting a good to strong recovery in this sector.

On the price front, scattered price concessions by manufacturers were reported in some Districts. Further strong upward pressure on prices, however, was widely anticipated in the face of increased labor costs. In this context, several Districts reported that bankers and other businessmen feel the GM settlement will affect forthcoming labor negotiations. Durable goods producers in the Chicago District with negotiations still pending are expecting to be under great pressure to follow the GM pattern, while in the Atlanta District, the aluminum industry is reported to be fearful it may have to settle on similar terms.

The majority of respondents thus look for inadequate growth and inadequate moderation of inflation. Against this background, several Districts report growing sentiment for stronger action by the Administration. The Philadelphia Bank reports a feeling among directors and others than an incomes policy is worth trying, sentiment for wage and price controls was expressed by directors of the Atlanta bank, while a number of directors and others in the New York District felt the need for additional action by the Administration to solve the employment-inflation problem.