Economic activity remains strong across the nation. Consumer spending is consistently described as continuing to grow in each District. A high level of activity is also reported in most manufacturing areas, as order backlogs keep production at full capacity in most industries. In spite of some signs of weakness, construction is maintaining current volume and in some Districts, it is expanding. The principal economic problem concerns stabilization policy, and in particular, the price freeze. The price freeze is causing major dislocations in agricultural processing. At the moment, the effects in other sectors such as manufacturing and retailing are limited, yet some inequities are appearing which would become serious if the freeze should continue beyond 60 days. Credit conditions remain tight as banks face very strong loan demand.

Consumer spending is showing no sign of slowing. In part this is attributed to expectations of higher prices. Heavy purchases of durables are reported by retailers in the Minneapolis and San Francisco Districts. Automobile dealers are also experiencing excellent sales, particularly in the Dallas and Atlanta Districts. In Minneapolis, Richmond and Cleveland, a shift is noted toward smaller cars, and this is thought to be a reaction to prospective gasoline shortages.

Manufacturing activity is pressing against capacity in most Districts, and order backlogs show no sign of shortening. Shortages of many materials are developing, and according to the Cleveland and St. Louis Banks, they are beginning to affect production adversely. Chicago reports shortages in steel, castings, chemicals, and many other products; furthermore, delivery dependability and product quality have deteriorated. Farm equipment and parts are also in short supply in several Districts. Construction, despite some expectations of slowing later this year, is at high levels in most Districts. Residential construction contracts increased in the Dallas and Richmond Districts, but Atlanta and San Francisco report forecasts of a construction slowdown later this year. Gasoline shortages are affecting tourism in such Districts as Kansas City and Minneapolis. In other Districts, shortages are not as severe, but the problem is causing some uncertainty and it is reducing demand for such products as recreational vehicles. Dallas reports its District refineries are turning out record amounts of gasoline; both Dallas and Chicago indicate, although there may be localized distribution problems, the shortage is not as severe as expected.

Despite a high level of activity, more concern is reported about prospective economic conditions in Philadelphia, Cleveland, and Atlanta. In contrast, the Chicago Bank describes local businessmen and bankers as seeing no sign of any downward trend. In other areas, the evidence is mixed; industrial equipment lines are at capacity in the Boston District, but orders for consumer goods are slackening. Inventories are variously reported unchanged in New York, lower in Richmond, and up in Philadelphia. In the St. Louis District, many industries are expanding production facilities, but in the Philadelphia area more firms are now expecting to decrease their capital expenditures.

Directors in several Districts are expressing concern over the direction of economic policy. Most feel that more emphasis should be given to fiscal policy. Reports for all Districts indicate various degrees of hostility to the present price freeze, ranging from belief that it is ill conceived to the opinion that it is disastrous. The common conclusion is that the freeze cannot be continued beyond the planned 60 days without serious problems developing.

The most serious consequences are now felt in agriculture and associated food-processing industries. The price freeze is cutting into livestock and poultry production. Feedlot operators and poultry producers are being squeezed by higher feed grain prices and fixed wholesale prices which do not cover costs. Food and grain processors in the Chicago, Richmond, Kansas City and San Francisco Districts have cut back or closed operations. Egg and milk production is expected to fall. Both St. Louis and Dallas forecast reduced beef supplies this fall as a result of the freeze.

In nonagricultural industry, the price freeze is beginning to cause dislocations. New York, Dallas and Chicago describe shortages caused by imports being hampered by low domestic prices. Some suppliers, according to the New York Bank, are exporting to obtain higher external prices and thus not filling domestic orders. Chicago lists a large number of devices that are beginning to be used by suppliers to evade price ceilings.

Banks in all Districts report strong loan demand. Real estate loans, in particular, are being restricted or tied to higher down payments. Kansas City banks report that the recent increases in prime rate are not discouraging business borrowing.