The general outlook for manufacturing and retailing in the District appears bright, but some slowdown is anticipated in construction activity. Sizable manufacturing sales gains are foreseen in the fourth quarter and the first half of 1973; District manufacturers, however, have yet to encounter capacity constraints and are generally experiencing no difficulty procuring needed workers and supplies. District retailers are enjoying a good Christmas season. Construction is not very encouraging in the Minneapolis/St. Paul metropolitan area, but both residential and nonresidential building appears to be flourishing in the remainder of the District.

Results of our fourth quarter industrial expectations survey predict continued expansion in District manufacturing activity. District manufacturers reported sales up 12.7 percent from a year earlier in the third quarter and estimated comparable gains in the fourth. They also anticipate 11.0-percent increases in both the first and second quarters of 1973.

This optimistic outlook can be attributed to the District's durable goods industries. After increasing 15.0 percent in the third quarter, sales of durable goods are expected to be up 17.9 percent from a year ago in the fourth quarter and then advance 14.0 and 11.2 percent in the first and second quarters, respectively. These sales gains will occur primarily in the electric and nonelectric machinery, primary and fabricated metals, and lumber and wood products industries.

Nondurable goods sales, meanwhile, advanced 11.3 percent in the third quarter and are anticipated to increase 7.4 percent in the next two quarters, followed by a lO.8-percent gain in the second quarter of 1973.

Although strong sales gains have been reported by District manufacturers, bank directors revealed that District manufacturers are generally not bumping up against capacity limits or having difficulty hiring workers or obtaining needed supplies. According to one Wisconsin director, for example, a large manufacturer in his community is expanding facilities but anticipates no difficulty adding 100 people to the work force. Several directors did report, however, that skilled labor is becoming harder to employ. And, one Twin Cities manufacturer stated that delivery times are lengthening on some items.

Also according to bank directors' reports, District retailers generally are having a very good Christmas season. One major Minneapolis/St. Paul area retailer reported that Christmas spending so far has been very good; he expects his Christmas business to be up 10 percent or more from a year ago. One director indicated that not only are his area's retailers optimistic about Christmas business but several also anticipate business to be quite good in January. A major Minnesota producer of winter recreational vehicles, however, reports that sales have not been up to earlier expectations.

Construction activity will probably slacken in the Minneapolis/St. Paul metropolitan area during the first six months of 1973 but continue quite strong in the rest of the District. According to a Minneapolis/St. Paul area banker, housing sales in the Twin Cities metropolitan area have virtually stopped, and large developers are curtailing activities until the market improves.

In addition, apartment vacancy rates are quite high in this area, and little apartment construction is anticipated there in 1973. In other parts of the District, however, several directors reported quite favorable outlooks for residential construction. This optimism was dampened only slightly by a South Dakota director who indicated that new home prices in his area have recently risen 10 percent.

The prospects for nonresidential construction in the Minneapolis/St. Paul metropolitan area are not very bright either; the area already has a surplus of office and warehouse space. But directors outside this Twin Cities region reported a number of nonresidential construction projects. Efforts to meet pollution control standards, for example, are spurring construction activity in northeastern Minnesota. And, although some consider it too early to assess revenue sharing's impact, several directors believe those funds will stimulate public construction in their areas.

A director associated with the construction industry foresees no pickup in District highway construction during the first six months of 1973. Looking ahead in another direction, however, this director feels that the Administration's allotted funds for sewage treatment plant construction will significantly bolster this type of construction, if spent, although only 45 percent of the funds authorized are to be used in fiscal years 1973 and 1974. Local governments so far have received very little funding from the Environmental Protection Agency.