Reports from our directors indicate business is continuing to expand at a rapid pace. New orders are rising, as are expenditures for plant and equipment. A tight rein continues to be exercised over inventories, and new hiring is spotty.

New orders were generally reported up substantially in both manufacturing and commercial construction. One supplier of construction materials for prestige buildings indicates the company now has a high level of backlog work, a sharp change from six months ago. Some disappointment in the rate of new orders for can-making machinery has been expressed by two directors in this field. A supplier of white pigment, a widely used industrial material, reports orders as very strong and that this plant is working at capacity. Capacity level operation was also reported by a manufacturer of carbon black, a material used in the manufacture of tires, and by a manufacturer of specialty chemicals.

Large capital expenditures are being planned by a firm involved in putting up a liquified natural gas facility. Plant expansion is also reported under way in some sectors now operating at capacity.

A director from a large commercial bank reports there has been no recent change in business loan demand. While loans are running 19 to 20 percent over a year ago, loans outstanding have not advanced in the past six weeks. The heavy increase in loans this year mainly represents business from outside of New England. This Bank director said pressure on interest rates has subsided recently, due to a large supply of funds, a slackening of demand (the seasonal demand for funds in October did not occur) and political pressures to hold interest rates level. In effect, the banker stated, we now have rate controls.

Three academic correspondents available this month, Professors Eckstein, Samuelson, and Wallich, agreed upon a 6 percent target for monetary growth. Eckstein expected a 6 percent rate of growth in nonborrowed reserves in 1973 but preferred a 6 1/2 to 6 3/4 percent average rate. The primary danger in the current outlook, he felt, is for this rate to fall below 5 percent for several consecutive months. Wallich prescribed a 6 percent rate of growth for Ml, under the assumption that velocity, will be rising at 2 to 3 percent rate. He urged the Board to undertake a study of what rate of growth of velocity can be expected to prevail in the future.

The three also agreed in their disapproval of the attempt, in Samuelson's words, to "talk interest rates down." Wallich said the current 7 1/2 percent level is too low for an economy with a 3 percent inflation rate. Granting there may be some psychological benefit in "talking down" rates, Samuelson insisted the main effect is to increase rationing. Eckstein argued it is impossible to go through an expansion without a rise in interest rates. Holding the prime rate below 6 percent would be an unfortunate, early trigger. He urged monetary authorities to reinforce the trend toward flexible rates and not to back "administered prices."