The Second district directors that were recently contacted continued to point to a strong business outlook. Consumer spending and business plant and equipment outlays were said to have remained at a high level, and the devaluation of the dollar in general was expected to lead to an improved international trade balance. However, there were continued reports of further tightening in labor markets, of growing shortages of fuel and raw materials, and of imbalances between the demand and supply of food which current consumer resistance to high food prices would do little to correct. As a result, concern over mounting inflationary pressures, and skepticism over the capability of Phase 3 to cope with such pressures, continued to be expressed.

Retail sales were reported as generally strong, and it was noted that the income tax refunds now being paid would provide added stimulus in the months ahead. One director felt that the currently high level of auto sales—which he characterized as of boom proportions—in part reflected some "buying ahead" in anticipation of higher prices resulting from the additional antipollution and safety equipment scheduled for the 1974 and 1975 models. As in previous months, a number of directors reported that retail sales were stronger in the suburban shopping areas than in inner-city outlets. One director noted the recent softening of consumer confidence, probably reflecting concern over inflation, indicated in some recent surveys; however, this director felt that consumer spending would nonetheless be strong.

The trend of business plant and equipment spending was also characterized as strong by a number of directors. A similar assessment was implicit in reports of the Buffalo branch directors, who observed that while there seemed to be a pervasive gloominess among businessmen in their area, these same businessmen were forecasting continued strength in their own companies' performances. The chairman of the board of a large oil company noted the adverse effect of environmental controls on capital outlays in the petroleum industry, which were severely hampering the construction of deep ports to accommodate super tankers, new drilling operations, and the construction of the Alaska pipe line.

A number of directors reported that employment has continued at a high level in their area, with the availability of certain types of workers falling short of demand. A senior official of a large upstate manufacturer felt that the job market in general was gradually tightening, with skilled workers in short supply. Two upstate bankers characterized employment as at a very high level, with continued tight market conditions expected for the balance of the year. Another respondent noted that unemployment in the Buffalo area still remained relatively high, but looked for this situation to improve as steel and auto plants increased hiring. However, most directors commenting on the employment outlook for students this summer took a gloomy view of prospects in that area, partly because of cutbacks in federally funded student summer employment programs. Some of the directors observed that substantial youth unemployment over the summer was one of the most serious problems facing cities in their areas. The senior official of the large upstate manufacturing firm, however, felt that the outlook for student employment this summer was probably the best since 1969.

There were also further reports of growing raw material shortages, including petroleum products, wood products, and nonferrous metals. In the latter context, the president of a multinational nonferrous metals producing corporation reported there were indications that "hot money" had moved into the future markets for such metals. The same director also stated that widespread raw material shortages—rather than plant capacity—seemed likely to lead to production bottlenecks over the coming months, and that the energy crisis was the single most important problem on the economic horizon.

Concerning the impact of the recent dollar devaluation, a New York City banker reported that this move would tend to produce a "one shot" increase in his institution's earnings by virtue of its effect on income from its overseas investments. He expressed concern, however, over the extent to which this development might give rise over the long run to more widespread use of controls on the international flow of funds. The official of the oil company reported that the recent international monetary steps should eventually help improve the country's trade balance, although he felt labor costs and productivity remained the crucial factors in any lasting improvement. According to this director, one immediate effect of the devaluation has been to exert significant upward pressures on oil import prices. Similarly, the president of a multinational nonferrous metal producing firm stated the devaluation had heightened the pressure on raw material prices, particularly those of nonferrous metals.

Against this background, concern over the prospects of mounting inflationary pressures in general continued unabated. The New York banker felt that Phase 3 appears to have triggered a new wave of inflationary expectations, and stated that inflation was currently the major economic and financial problem facing the Nation. Another director felt that the elimination under Phase 3 of the day-to-day administrative delays in granting price increases was contributing to the rapid rise in prices (and would also contribute to a sharp increase in profits). According to most of the Buffalo branch directors, growing consumer resistance to high food prices by itself would not have a lasting effect. However, the directors felt that recent moves by the Administration to increase the supply of feed grains and imported beef should tend to bring about a leveling of prices by the last quarter of the year.