This month's District Red Book reports, on balance, describes the current and prospective pace of business activity as very strong, in some cases reaching boom proportions. Consumer and business investment spending showed impressive strength, and construction remained at a high level. Employment was rising. On the negative side, evidence of increasing strains on productive capacity was emerging, with widespread lengthening delivery schedules and growing shortages of labor as well as materials. Prices were rising and serious doubts were frequently expressed regarding the probable effectiveness of Phase Three in controlling inflation. Countrywide, little concern was expressed over recent international financial developments.

All Banks reported continued advances in economic activity. The assessments ranged from "boom", "near boom", and "most vigorous in many years" (Kansas, Cleveland and Chicago), to a somewhat more restrained expectation of continued expansion at least until mid-1973 (San Francisco and Dallas).

Reports of strength in both consumer spending and in business outlays for plant and equipment were widespread. Atlanta reported that many retailers are expecting a banner year. San Francisco characterized consumer spending as generally "vigorous", especially for automobiles and durables, and a number of major retailers in the Richmond District reported sales to be considerably higher than year ago levels. Similar reports emanated from most other Banks.

Plant and equipment outlays were reported as especially strong (San Francisco), brisk (Atlanta), and continuing at a high level (Philadelphia). A number of Richmond District manufacturers indicated current plant and equipment capacity to be at lower than desired levels. Further evidence of strong capital spending was provided by a number of reports of large order inflows in the capital goods industry, including among others, the Boston, Cleveland, Chicago and St. Louis Districts. A number of Banks also reported a high level of commercial construction, in some instances (Atlanta) reaching boom proportions.

On the darker side, the brisk pace of economic activity has led to mounting strains on productive capacity. Most Banks reported rising backlogs of orders—in some cases to record or near record levels— and lengthening of delivery times. Similarly, there were frequent reports of actual and anticipated shortages of a wide range of basic raw materials, including steel, chemicals and construction materials (notably lumber)—and of semi-finished and finished products as well. The employment picture has tightened further, and shortages of skilled and semi-skilled labor were reported by a number of Districts.

Against this background, concern over the prospects of a heightening of inflationary pressures was widely reported to be on the rise. For example, the Philadelphia report states that inflationary expectations are high and rising, and some respondents in the St. Louis and New York Districts deemed inflation to now be the chief current economic problem. Similar expressions of concern appear in most other reports. Indeed, rising prices are pointed to by well over half of the Banks. In this context, considerable doubt was expressed about the effectiveness of Phase Three in controlling inflation, particularly on the wage side. Dallas reports that the introduction of Phase Three had caused a number of its respondents to alter their expectations regarding prices, which they now foresee rising much faster than previously thought likely.

Turning to the credit scene, most Districts reported a strong demand for bank loans, especially consumer loans. Several Districts reported a slowing down in the rate of deposits, and growing banker concern over disintermediation was mentioned by several Districts, including Philadelphia, Dallas, Kansas and Boston.

In general, little concern was expressed over the domestic impact of the recent international financial disturbances. Respondents in the San Francisco and New York Districts felt that the recent devaluation of the dollar should help stimulate exports.