The thrust of recent statistical evidence and information received from economists, businessmen and directors indicates that economic expansion is continuing at a strong pace in the district with few signs of weakness. The manufacturing sector appears to be gaining momentum, and the near-term outlook remains good. Signs of strength are broadly based, including improved orders and sales in defense and producers' goods and particularly high levels of activity in consumer-related areas. Our directors continue, to be optimistic about the prospects for business next year. In addition, there is sentiment among our board members for continuation of the controls program in view of the crucial labor contracts up for renegotiation in 1973. Bankers are experiencing strong loan demand, especially from consumers.

Some of the principal economic indicators that describe the continued expansion in activity in the district are: the unemployment rate, which has continued to edge down; payroll employment, which has shown strong gains in recent months (particularly in durable goods manufacturing); our electric power indexes of manufacturing activity, which began to post new highs during the past few months for all major metropolitan areas of the district (after having recouped losses incurred during the past recession); and residential construction contracts, which remained close to a record high in August and September. Nonresidential building, however, still appears to be sluggish. Our most recent survey of district manufacturers shows evidence of strengthening in the pace of the recovery. Key indicators, such as new orders, shipments, backlogs, employment, and the workweek, registered solid gains in October, and firms expect business conditions to be even stronger in November. Our survey also indicates that prices continue to be held reasonably well in check, with the diffusion index for prices paid having hovered around the 60 percent level since February.

The strong tone of business conditions in the district is also apparent from comments from our directors. Industrialists associated with consumer-related activities reported excellent business conditions in areas such as automotive parts, paints, glass and rubber. Capital goods producers indicated defense-related business is improving in several firms. A director in the machine tool business reported that new orders were up 50 percent from a year ago, and that his firm, along with others in the machine tool industry, is experiencing difficulty in rehiring the skilled workers they had to lay off when business was poor. On the other hand, several directors whose firms are experiencing sizable increases in orders plan to meet the rising demand without significantly expanding employment. Office equipment business continues to be excellent, and backlogs are rising. Several directors whose firms have had a significant recovery in business reported that total profits had increased, but that profit margins were comfortably under the ceilings of the control program. An exception to the favorable business reports from our directors was the remarks from one director who noted that his firm's specialty construction business, which is almost entirely related to the steel industry, has been poor this year; he expects the steel industry to increase construction spending next year, however.

Some directors are quite concerned about a possible reemergence of inflationary pressures in 1973. Although the directors were beginning to note some complaints among industrialists because of what were described as unfair rulings of the Price Commission, a number of them seemed to favor continuation of wage-price controls in 1973. The directors were particularly concerned over the implications for wage increases and strike activity if the controls were to be dropped in the face of forthcoming labor negotiations.

Banking directors reported strong loan demand, especially from consumers, and increasing demand and time deposits. One director from a large reserve city bank, however, noted that the savings and loan institutions in his area were receiving a disproportionate share of the increased savings flow.