Recent sales of wheat to Russia and China have created a very favorable situation for growers; with no crop carry-over, good wheat prices are expected to hold next year also.

Retail spending is maintaining its previous rate of advance and is now well ahead of the same period last year. Retailers are optimistic that this trend will continue for the rest of the year. Automobile dealers are very optimistic for sales of the '73 models, although current sales are being held down by slow deliveries. Even in those areas where unemployment remains a problem, consumer spending is described as noticeably stronger.

District bankers report stronger loan demand by business. One large Oregon bank, despite a slight downturn in commercial loans last month, expects further growth over the next few weeks on the basis of the present volume of loan applications. Commercial banks generally report good demand for loans, along with steady growth in deposits. Time-deposit rates have climbed somewhat, and the prime rates of most banks have been raised in accord with national trends. Also, conventional mortgage rates in Southern California are reported to have risen 1/4 percent or higher. Banks are reasonably liquid and are in a position to meet increased loan demand without major increases in interest rates.

Our directors report that economic activity is continuing to register solid gains in most sectors of the Twelfth District. Investment expenditures should rise strongly during the rest of this year and into 1973. Retail sales in most areas are maintaining a steady growth. Construction is holding up well despite certain signs of weakness, and this in turn is contributing to a high demand in the District's forest-products industry. Agriculture similarly has experienced a good crop year.

Against this background of activity, our directors report that investment expenditures are expected to be higher in the rest of this year, and that they will grow further in 1973. In forest products, high demand for housing justifies modernization and expansion of capacity. In aircraft, rising demand for air-transport equipment will stimulate further investment. Pollution control is requiring heavy expenditures; in Washington, for example, one company is planning $22 million in control facilities, and a smelting company will spend $18 million to reduce smoke emissions. General manufacturers in Los Angeles and machinery producers in Oregon are expanding to meet increased consumer demand, expenditures by public utilities to expand capacity will be important in maintaining construction spending. Although some directors again report overbuilding of apartments and office buildings, construction generally shows no serious signs of weakness.

Assisting these higher levels of investment are favorable cash flows and recent tax changes, particularly the investment tax credit. The latter was singled out as a major factor influencing current investment plans in both industry and agriculture.

Our directors (except in Utah) generally expect a sizable and broadly-based rise in investment expenditures. A major California bank forecasts a 14-percent increase in business fixed investment in 1973. Associated with this spending on fixed capital will be a higher rate of inventory accumulation, above the current sluggish pace, through the first half of 1973.

Agriculture has had an excellent year, and the high income received by farmers has led to heavier investment in new equipment and facilities. Many farmers are turning to larger machinery and are also spending to improve their irrigation systems. According to a Washington director, the rising cost of farm labor is another factor generating higher investment. Efforts to reduce labor costs have led to expansion of capacity in hydroponic grown crops, as well as more efforts to mechanize in field crops. Even where there is no expansion, there is at least constant replacement of equipment.