For the first time in a long while, all our directors from manufacturing and construction firms reported that business was very good. New orders were reported rising in all sectors, and there were scattered reports of new hirings. No strong inventory building, however, was noted. The local fishing industry, which has been badly hurt by the red tide scare, is an exception to the generally improving pace of economic activity.

Our business directors had no bad news to report. Orders were up in all areas for consumer goods, industrial materials, capital goods, and aerospace. While capital goods and machinery orders are rising and backlogs improving, one broad-based manufacturer noted that the gains are much more moderate than the national statistics on capital spending would indicate. Our directors' firms are themselves, however, trying to expand capacity now, although they still have ample capacity in most lines. One director mentioned that his firm is building two new plants to manufacture campers, a product line where demand is very high. Another announced the construction of a $100 million facility to handle imported liquefied natural gas. Capital spending to more fully automate plants was also mentioned.

All our directors mentioned that they were increasing their work force. Workers who were laid off in the machine tool division of one company have all been recalled. A bank director from Martha's Vineyard noted that young women were finding employment in new occupations like fishing and carpentry.

The red tide scare has severely depressed the entire New England fishing industry, not just firms selling infected shellfish. New England fish sales are reported 75 percent below normal levels. Our director from Martha's Vineyard reports that the island, which usually exports its fish heavily at this time of year, can find no market for its uncontaminated catch.

Our directors continue to show concern about a reemergence of inflation. They seem to be equally worried, however, that anti- inflationary measures taken by a reelected Nixon administration would clamp down hard on profits or cut spending to the point of bringing another recession. They noted that these fears are very widespread on Wall Street. They also show concern over the large budget deficit. In anticipation of higher interest rates, one of our directors has already undertaken his long-term financing needs now. One director mentioned that he felt more relaxed about inflation than he has in a long time because controls have worked so well. However, he strongly expressed the opinion that controls should not be removed before the end of next year, if inflationary expectations are to be effectively dampened.

Our four academic correspondents, Eckstein, Samuelson, Shapiro, and Wallich, agreed that the economic outlook, both domestic and international, is good. The latter, according to Shapiro "has never looked better." Professor Wallich expressed concern over the current rate of money growth in light of the 5.9 percent trend which prevailed over the inflationary period from late 1966 to late 1971. He granted that there may be a tendency for velocity to diminish along with inflationary expectations. Wallich and Shapiro would like to have monetary growth taper off to a 6 to 7 percent annual rate; Samuelson hoped for 7 percent for the rest of the year.

There was a general anticipation that neither the proposed budget ceiling nor the refunding of overwithholding would have a strong economic impact. On the other hand, Shapiro believed that the ceiling would have a favorable psychological impact on the financial markets. He felt that failure to enact the ceiling could add as much as 50 basis points to the 7 1/2 percent corporate new issue rate he expects to prevail by the end of 1973. He foresaw no credit crunch in 1973—a bill rate of 5 1/2 and a long-term government rate of 6 1/4 by year end.

Eckstein did not think there would be a budget ceiling. He regarded the proposal as only pre-election political maneuvering, although he granted that there is a budget problem. Eckstein was less concerned about the budget than about the future course of bank reserves. He advocated a "modest 6 to 8" percent rate of growth of RPDs. He argued that it would be dangerous at present for the monetary authorities to go outside of this range, regardless of the perceived degree of fiscal restraint or stimulus.

There were no strong opinions on discount rate policy, although Samuelson and Eckstein stressed the need for flexibility.