Business activity in the Eighth Federal Reserve District continues to increase moderately. According to a survey of leading businessmen, the uptrend in construction activity established last year is apparently being maintained. Retail sales at larger department stores are running somewhat ahead of a year earlier, and factory orders continue to improve moderately. Demand for transportation services is rising. The agricultural sector is quite optimistic as a result of recent price increases for a number of major farm products. Some businessmen, however, expressed doubt that the rosy projection of a $100 billion gain in gross national product (GNP) will be achieved. They point to the reluctance of businesses to make major investments in view of expected moderate profit levels. Furthermore, few report increased employment or intentions to hire additional personnel. Savings at financial agencies remain at high levels, and interest rates on mortgages are receding.

With the construction industry leading the way, business activity continues the moderate uptrend established in late 1970. Suppliers of new building materials and new household equipment report rising sales. Expenditures for improvements on older buildings are likewise increasing.

Farm income prospects have improved substantially in recent months, and farmers are spending more on production items. Sales of farm production supplies, especially chemicals, are running well ahead of year-ago levels.

Airlines travel continues the sharp uptrend which began in the fourth quarter of last year. With the relatively narrow margin between use and capacity, the gains point to an early increase in passenger plane production.

Retail sales are running ahead of year-ago levels at most stores and somewhat ahead of the amounts budgeted. Major retailers in the area, however, do not believe that this will be one of their better profit years. They report increasing difficulty in showing a profit at large downtown stores, where their volume of business is usually greatest. The large chains report that all of their gains are coming from outlying branch stores.

Despite the gains in factory orders and retail sales, new investments and additions to payrolls are being delayed as long as possible. Major manufacturing firms report that nothing has occurred to date to merit an increase in their investment plans. One official reported that he could see nothing more than a very moderate uptrend, with some increase in profits resulting from stringent cost cutting. There were a few reports of increases in expenditures for labor-saving equipment and plant modernization, but none reported major plans for increasing overall capacity. Two retailers reported some new investments in outlying stores, but both indicated excess capacity in some older establishments.

It is difficult to find a major manufacturing firm that admits to an expansion of its work force. Some have changed the composition of their work force, adding engineers and reducing manual laborers and vice versa, and occasionally one will report rehiring some employees who were laid off earlier. The interviews thus confirm the statistical reports that the employment gains have occurred almost entirely in services trades and in construction.

Financial agencies report that inflows of savings continue at a high rate, and withdrawals are below average. Negotiated rates paid on large savings accounts are down somewhat. Maximum permissible rates are still being paid on most regular savings accounts by the savings and loan associations, but some commercial banks have reduced their rates paid from the maximum permissible levels. Loan volume continues to rise moderately, but interest rates on mortgages have receded somewhat in recent weeks. Some conventional mortgage loans of up to 80 percent of the purchase price are being made at a 7 percent rate, and some loans up to 67 percent of the purchase price are made at a 6.75 percent rate.
These rates are down from 7.25 percent and 7 percent, respectively, since the first of the year.