Economic activity in the district is continuing to expand at a rapid pace, but prices are under increasing upward pressure, and reports of shortages of skilled labor and materials are more numerous. Conditions in the manufacturing sector remain particularly strong, with lengthening lead times and shortages becoming more of a problem. The steel industry is operating at full capacity, and will continue to do so throughout the remainder of the year. Reports from business and financial executives reflect growing concern about the duration of the current rapid pace of economic expansion, particularly in view of the inflationary situation and the view that monetary and fiscal policies are becoming more restrictive. Cleveland banks recently raised interest rates on time and savings deposits. Finally, farmers in northern Ohio are conducting their own meat boycott.

The near-boom conditions in the district's manufacturing sector (mentioned in last month's report) continued in March, according to early returns from our monthly survey of district manufacturers. Purchasing agents in the greater Cleveland area complained that Phase 3 controls are not tight enough, and that price increases are widespread. March was the third consecutive month in which the overwhelming majority of firms paid higher prices; such price increases have not been reported for three successive months since the early 1950s. In addition, buyers reported that lead times are lengthening markedly and that shortages of materials are multiplying. Skilled labor is difficult to find, and firms are forced increasingly to expand overtime and some are going to a six-day workweek.

At a recent meeting in the bank, a number of chief executive officers, representing securities firms, manufacturers, and retailers in the Cleveland area expressed concern over inflation and economic prospects for next year. The security firm executives indicated that the weakness in stock prices is reflecting the inflationary climate and tightening monetary policy. They were apprehensive that there could be another credit crunch and, perhaps, a recession.

Economists from three major steel companies in the district report that their mills are operating at peak capacity. One noted that orders are coming in at a rate 30 percent higher than shipping capabilities, which is pushing lead times out. Some customers have been trying to place orders for fourth quarter delivery, but the company will not accept orders that far ahead at this time. Another steel firm reports that pollution controls are partly responsible for restraining production; some of the firm's steel furnaces are inoperative because they cannot meet the clean air standards. A third steel company reported that shipments are on a controlled distribution basis and order acceptance is being limited to prevent serious overbooking.

The three economists expect steel imports to decline during the second half of 1973. Steel customers report that foreign producers are reluctant to make commitments for the second half because of strong world demand. Some foreign steel items—particularly those in heavy demand—are now more expensive than domestically produced items. In addition, the recent no-strike bargaining agreement between the United Steel Workers and ten major steel companies (which assures an uninterrupted flow of steel) is expected to curb imports, and to eliminate the need for inventory stockpiling as a strike hedge.

During the past two weeks, Cleveland banks increased interest rates on consumer-type savings accounts by one-half percent to the regulation Q limits (banks had lowered their rate on savings in April 1971). Mortgage rates have generally moved up one-quarter percent (in some instances before the deposit rate adjustment, and in other cases afterwards). One bank contact suggested that increases in mortgage rates were in anticipation of a freeze on interest rates.

In the agricultural sector, farmers in northeastern Ohio conducted their own boycott last week by withholding their steers, hogs, and lambs from the market. Sales declined by 50 percent at the regular weekly stockyard auction in Cleveland, and cattle prices were bid up $3 a hundredweight.