Reports from our directors and other business leaders recently contacted indicate that economic activity remains very strong. Respondents cited the high and improving degree of business confidence and described the outlook for 1973 in generally favorable terms.

Most respondents characterized retail sales as very good now that the holiday season is underway. The chairman of the board of a Rochester department store, who earlier had been somewhat skeptical about consumer spending, said that Christmas sales were likely to outpace last year's showing by a wide margin, and this view seemed to be generally shared. A director of the Buffalo branch attributed the buoyancy of consumer spending to the expectation of a Vietnam settlement, increased personal income, the removal of election uncertainties, and the stability accompanying wage-price controls.

The economic outlook for 1973 was described as favorable by all respondents although the degree of optimism varied. In the view of most directors, production, sales, and employment are expected to show further advances. One director felt that the growth in output and employment would be almost as rapid as the gains experienced this year. Several respondents said that production is likely to outpace sales because of the need to rebuild inventories. On the other hand, a director associated with the metals industry commented that inventory accumulation by the metals-using industries was being held down by the continued presence of considerable excess capacity and a weak price outlook. A director of the Buffalo branch, who is a senior official of a large upstate manufacturer, suggested that unemployment will average about 5 percent for 1973 as a whole. He added that wage increases might moderate a bit but that advances in prices will probably be about the same as in 1972.

In this connection, almost all of the respondents were agreed that wage-price controls would remain necessary next year. A bank chairman said the program should be maintained for at least a while longer, although he felt that it should not become a permanent feature of the economy. Another director said that the program, at least in some form, should be continued for another 9 to 12 months. Only one director, associated with the metals industry, expressed reservations about the program. He said that the metals industry favors eliminating the controls and noted that fluctuations in uncontrolled raw materials prices combined with controls on the prices of final products had resulted in distortions and inefficiencies in overall pricing.

All of the directors detected a high and improving degree of business confidence in the economic situation, but the current state of confidence was described in terms that fell short of exuberance. Changes in inventory spending were variously described as minimal to robust. One director said that inventory controls were still very tight, while another in the automobile parts business said that inventory spending is increasing sharply as a result of a tightening supply situation and slower deliveries. Several respondents noted that there was some progress in implementing capital spending programs which earlier had been slowed down or held in abeyance pending clarification of the overall economic outlook.

The chairman of a large New York bank said there are signs of serious overbuilding of apartments in some parts of the country and was concerned about the proliferation and credit status of real estate investment trusts and land development companies. He suggested that these enterprises may represent the one significant weakness in our overall credit structure. Another director thought that overbuilding would become a national problem if housing starts remained at their high 1972 level. However, he expected a reduction in housing starts of about 10 percent during 1973 because of shortages of building materials and reduced availability of mortgage money and felt that this would prevent overbuilding from becoming a general problem.