Directors in the Twelfth District were asked to assess wage and price trends in their area or industry. Their consensus is that increases in both prices and wages would be moderate and consequently there would be less inflation in the coming year. For the economy in general, further expansion is expected in most industries, with the possible exception of construction where some leveling off is foreseen.

Wage increases in the 5 percent range are judged to be likely for the coming year. There are some exceptions, however. For example, one manufacturing firm expects a 6 1/2 to 7 percent increase for the year. Unionization of farm workers is a factor that would add to wage pressures in agriculture, and the expansion of aircraft production in Seattle will create pressure on the wages of some classes of skilled and office workers. Wage controls cause problems for some firms that lose key managers and skilled personnel through their inability to match outside offers. In the view of most directors, maintenance of wage controls will be a major element in keeping wage increases in line through 1973, a year when many major contracts expire.

Associated with the lessening of wage increases will be slowing of price increases. In several industries the ceilings have stopped price rises, while in others insufficient demand is a major reason for restraining increases. Therefore, a 5 percent increase in list prices may mean only 1 to 2 percent in effective prices due to competitive pressures forcing price concessions.

Agricultural prices, which have been very good in 1972, are not expected to be much higher according to directors in agricultural areas. Several directors believe both wheat and cattle prices in particular are not likely to climb much more. On the other hand, smaller crops elsewhere in the country will maintain prices for western potato growers.

One effect of price ceilings has been to narrow profit margins. A large producer of processed foods reports that the inability of several large firms to get approval for price increases on some product lines has prevented others from raising prices. The lower margins exist in such lines as canned beef, fresh milk and ice cream. Firms affected are continuing to watch inventories and to reduce their labor force whenever possible. Another problem, in one director's view, is that price cutting by one major chain is cutting food retail margins to levels that may have a serious financial impact on a number of quite substantial chains throughout the country.

The overall performance of the economy remains satisfactory. Retailers in the Twelfth District are expecting excellent Christmas sales at levels about 10 percent above the previous year's sales. As a result, some stores have been increasing their sales force earlier than usual.

However, a hesitant attitude by wholesalers may lead to inventories that are too thin to meet expected consumer demand for some products and thereby keep sales to a lower level.

Construction activity, although high, is causing some concern. In Seattle there remains considerable vacant space in commercial office buildings and warehouses, and in Portland there is some evidence of overbuilding of apartments. A recent court decision in California requiring environmental impact studies for large construction projects is singled out as another factor causing uncertainty about future construction activity in the state.

Bankers in southern California report strong demand for mortgages and for consumer credit. Deposit inflows are also strong. In Portland, business loan demand is described as disappointing, while in Utah and Idaho it is described as very strong. Generally, banks are able to meet foreseeable loan demand with minimal stress.