Retail sales increased in late December. The supply of labor continues to outrun demand. Demand for capital equipment remains very slow. New order trends indicate a rise in steel shipments in the first quarter. Motor vehicle output will be very large in the first quarter for G. M., but other producers are cutting output schedules. Savings inflows have been excellent. Liquidity positions of business firms and financial institutions are improving. Lenders remain cautious on new commitments. Price inflation has moderated somewhat. Overall, business and financial leaders anticipate a gradual rise in total activity in 1971, but with relatively high unemployment and continued general price inflation.

Total retail sales apparently surged in the last week before Christmas, and a stronger tone has continued in the post-Christmas weeks. Results have varied greatly among retailers, however. Downtown shopping areas are continuing to lose trade to suburban shopping centers. Customers are said to be responding to sales promotions (started before Christmas in many cases) but are avoiding luxury goods and big ticket items. Price reductions on sale merchandise appear no more drastic than in past years.

The number of job seekers continues to grow. The labor supply is expanding for a number of reasons, other than natural growth: the number of ex-servicemen, reduced enrollment at some colleges, and the number of secondary workers attempting to supplement family income. Unemployment has hit people in all categories of training and experience. The quality of applicants for less desired jobs, such as door-to-door selling, has improved. Meanwhile, managements continue to sharply restrict new hirings. Despite these signs of easing labor markets, demands of organized worker groups remain heavy by past standards.

Orders for most types of business equipment remain at reduced levels. Inquiries are said to be numerous, but these are not translated into actual sales. Public utilities are going ahead with plans for expansion and service improvement. The slump in the aircraft industry has hurt some district producers of machinery and cutting tools. A number of important firms have decided to keep capital outlays at, or below, depreciation in 1971.

Steel orders began to improve on a broad front about a month ago. Some customers delayed December deliveries to minimize year-end inventory values for tax purposes. Foreign demand for American steel has faded in recent months and is not expected to revive. Auto companies are encouraging their suppliers to lay in 60-90 day inventories of steel as strike protection. Some steel orders will be stimulated in the next several months prior to the expiration of guaranteed prices fixed for a full year ahead at various dates in 1970.

Some local governments, especially in Michigan, are curtailing programs for lack of funds. Higher wages and salaries coupled with reduced revenues necessitated these decisions.

Savings inflows at banks and S&Ls have been at very high, often record, levels in recent months. This is true of institutions in both large and small cities. Business loan demand at commercial banks is far below last year's levels. Policy loan demand at life insurance companies continues to moderate.

One large bank decided recently to maintain its Eurodollar base, despite the relatively high cost of these funds. This decision was apparently based on the expectation that some other actions will be taken by the Federal Reserve System to reduce the effective cost of retaining Eurodollar balances.