Most of the developments in the District point toward a firming of the current economic recovery. New orders and producers' backlogs in manufacturing are still rising and are expected to show further gains in March. Nonfarm payroll employment continues to rise, although the insured unemployment rate leveled off in February after having declined for several months. The steel inventory liquidation is largely completed, suggesting a continued recovery in output and shipments in that industry. Some of our directors believe, however, that increases in manufacturing industry payrolls in the near term will be quite modest. Finally, several Pittsburgh banks lowered passbook savings rates, reflecting an unfavorable spread between deposit rates and loan rates.

Nonfarm payroll employment continued its small recovery into January. The District's insured unemployment rate, which has been declining since last September, leveled off in February, however. Most major metropolitan areas in the District are beginning to show signs of recovery, but continued unemployment problems are reflected in the addition of Wheeling, West Virginia, and Pittsburgh, Pennsylvania, in February to the list of areas with substantial unemployment. Although some industrial directors have reported recalls of workers, numerous layoffs and some plant closings have been reported, indicating that the employment turnaround is of modest proportions. Several directors foresee strong sales gains in the period ahead, but in general they have indicated that there will be no major employment additions in their plants.

Consumer steel inventories declined at the end of January to year- ago levels, suggesting near completion of inventory liquidation. Steel output rose strongly in February and is expected to increase again in March. Reporting steel companies indicated that new orders are strong, with the exception of certain types of construction steels. There were slight increases in both the production and sales of domestic new cars in February, and further small gains are expected for March. Truck production is running at maximum capacity, and February truck sales were at a record monthly high level.

Reports from directors indicate the pace of business for firms supplying products to the construction industry is excellent. Comments on the machine tool industry ranged from "dismal in February" to more optimistic comments of general recovery. Two directors mentioned rising orders in steel and office machines; however, they also expressed the view that employment gains would be limited.

Our latest survey shows that the District's manufacturing sector continued to show clear-cut signs of recovery in February, with faster than anticipated increases in new orders, shipments, backlogs, and labor utilization. On the other hand, there is little to suggest any sizable pickup in the rate of inventory buildup. The available evidence on inventories suggests that inventory accumulation has not yet turned around. Firms expect the upward pace of manufacturing activity to continue in March, with large gains in new orders.

District bankers have continued to talk about the unfavorable margin between deposit rates and rates on loans and securities. This has been coupled with an expectation that business loan demand will not revive until sometime in the second quarter. As a reflection of these concerns, several large Pittsburgh banks cut their passbook savings deposit rate from 4 1/2 percent to 4 percent on March 1 and extended the maturity structure of rates. Stated mortgage rates were also reduced (the base rate on conventional loans is now 6 3/4 percent). It is too soon to determine whether the pressures of these combined moves will induce mutual savings banks and savings and loan associations to follow.