The relatively optimistic mood of this Bank's directors regarding the current general business outlook remained in evidence this month. The Directors felt that residential construction activity would remain at a high level in 1973 and that consumers' outlays would continue on the upswing. The consensus was that there had been little change in the rather conservative inventory buying practices, but this was largely attributed to more efficient management, with the help of computers. Concern, however, continued to be expressed over the inflationary implications of the Federal budget and labor unions' large wage demands.

Regarding the overall current economic outlook, the directors in general felt that the current and prospective business situation had undergone little change recently and reported a generally optimistic mood among themselves and their associates. Indeed, the president of an upstate bank reported some heightening of optimism in his area as a result of a reduction in local unemployment. And another upstate director noted that, apart from certain segments in agriculture and tourism that had been adversely affected by poor weather, all other economic sectors in his area looked "very strong." Concern, however, continued to be expressed over the inflationary implication of the fiscal and wage situation. A Rochester retailer thus noted the necessity for additional taxes to finance even current government expenditures, and another director referred to the urgent need to develop new federal budget controls. An upstate manufacturer remarked that continued wage controls seemed to be a "necessary evil" if the problem of cost-push inflation were to be solved.

Concerning residential construction, the directors expressing an opinion on the topic all felt that homebuilding would continue to be relatively strong in 1973. Some of the directors forecast a continuation of the popularity of multiple-dwelling units and strength in apartment building activity. One director noted that the damage caused earlier this year in his area by a hurricane and floods was generating an unusually large amount of construction of new homes and of reconstruction of existing structures. Another director reported that homebuilders in the Rochester Area felt that expected ample availability of mortgage funds would contribute sustained strength to home construction next year.

Regarding consumer outlays, most respondents characterized the picture as good but not spectacular, and about in line with expectations. One director—the president of a large container manufacturing firm—felt the situation was "very good." A senior official of a large upstate firm also felt that a boom in consumer spending, while not as yet evident, might materialize next spring.

The directors, however, in general saw little if any strengthening in the current inventory picture, in either trade or manufacturing. An upstate director associated with the automotive parts business did state he detected an upward trend, and the Rochester retailer also felt the overall pace of inventory spending looked a bit stronger. The latter director, however, suggested that some of the accumulation in the retail sector in the Rochester Area might be involuntary. Another director suggested that recent published statistics pointing to a climb in inventory spending might be misleading because such increases may, in part at least, reflect the impact on the book value of inventories of rising prices.

Another director stated that the high cost of carrying inventories was tempering the demand for additional stocks. Also, a number of directors noted that computer-based control systems enabled businesses to carry inventories at lower levels.