New orders are reported as very strong in virtually all business lines, with capital goods orders especially heavy. Supplies are very tight and little inventory building is occurring. Concern was expressed about large price increases by suppliers and the lost feeling that we are licking inflationary psychology. Bank directors were worried about heavy loan demand, both in terms of the lowness of the prime rate and banks' inability to attract demand deposits.

The machine tool industry is reported as doing very well. One large manufacturer of capital goods reports that new orders are very, very good, and that backlogs are double those of a year ago. Despite the fact that the unemployment rate in Connecticut is close to 6 percent and over 6 1/2 percent in Massachusetts, capital goods manufacturers in both states are experiencing problems in getting skilled workers or even apprentices. Excellent foreign and commercial orders for helicopters have raised prospects for one aerospace manufacturer, although the defense industry in New England is still suffering from cutbacks in defense spending. According to one director associated with a large conglomerate, everyone is having difficulties in getting supplies. From a situation not too long ago when delivery was almost overnight, there are now delivery waiting times for everything from packaging materials to machinery.

Sky-rocketing price rises by suppliers were noted. These price increases appear to be concentrated among moderate-sized firms (those employing hundreds rather than thousands of employees) which are not being carefully scrutinized for price increases under Phase 3. Our directors feel that the lack of enforcement power for following guidelines is the problem. One director also reports a return to the psychology of hoarding, shortages, and creating artificial shortages. As an example of the latter, he notes that the paper industry is no longer making certain lower grades of paper, forcing buyers to pay for higher grades of paper than they need.

Bank directors report heavy loan demand. One large Boston bank director expressed the opinion that some business firms are drawing down loan commitments at the bargain prime rate to buy CD's in New York. Another bank director noted that he has had to use the discount window quite heavily to meet the legitimate loan needs of his business customers because he cannot attract demand deposits with current interest rate ceilings. Savings deposit inflows in March, however, were reported as strong, reversing February's performance.

The monetary policy recommendations of our academic correspondents, Professors Eckstein, Samuelson, and Wallich, fell into three distinct categories. Samuelson, citing Alan Greenspan's projection of a $20 billion boom in inventory investment in 1973, urged a more active policy of "lean against the wind." He suggested a monetary growth rate of under 3 percent for the next two months. Wallich, who felt that the expansion is still reasonably well balanced, urged that policy tighten a notch," specifically that monetary growth be in the 3 to 5 percent range. He argued that recent price developments could be viewed as a bulge, due to the transition from past decontrol or to anticipated future recontrol. Eckstein, concerned with the lagged impact of policy, advised a 5 to 6 percent money growth target. Sensitive prices, he reminded, are an indicator which has moved early in a cycle and, if history is any guide, will soon begin to decline. He felt the greatest risk at present would be that the Federal Reserve will overreact to this development which, he estimated, will have only a modest impact on final list prices. More importantly, the wage round settlements have not as yet deteriorated, despite other price behavior. Eckstein warned that bank loan demand over the next few weeks (and again in June) will be unseasonably large due to tax payments. He believed that obligations are exceptionally large and have been underestimated by the Treasury.