This month's district Red Book reports indicate that the current vigorous expansion is increasingly straining capacity. Raw material shortages, lengthening delivery times and difficulties in finding skilled labor are emerging. Inflation is again the major economic concern with recent price increases rekindling inflationary fears.

All districts reported continuing gains in economic activity, with most Banks describing business conditions in terms like "robust" (Atlanta), "expanding at a rapid pace" (Cleveland and Dallas), and "strong" (Minneapolis).

The labor picture, however, varies sharply among districts. Dallas reports the unemployment rate dropping to 3.6 percent, while the First District is still experiencing unemployment rates above 6 percent. Philadelphia reports modest gains in employment, while Chicago, Cleveland, Dallas, Atlanta, and St. Louis have tight labor markets with significant skilled labor shortages.

Growing raw material shortages and lengthening delivery times were also mentioned by most Banks. Shortages of petroleum products, wood products and nonferrous metals were cited by New York, while gasoline rationing was noted in parts of the Atlanta and Dallas districts. The Dallas Bank reports that oil companies believe that rationing is a "definite possibility" and Chicago reports that fuel shortages in the Midwest are the "worst in the world" with oil firms refusing new customers and placing ceilings on sales. The concern expressed by a New York director that "widespread raw material shortages—rather than plant capacity—seemed likely to lead to production bottlenecks over the coming months" appeared evident in many Bank reports (Boston, Kansas City, Cleveland, St. Louis, Chicago, and Atlanta).

High levels of construction activity were described by several Banks. Residential construction is described as strong (Atlanta, Chicago, St. Louis, Kansas City, and San Francisco) despite rapid price increases (Kansas City and Atlanta) and recent increases in mortgage rates (Kansas City, Cleveland, and Chicago). Commercial construction is reported as heavy by Atlanta, but "spotty" by St. Louis, and Dallas notes a recent decline in contract awards.

Capital spending by business is a major source of strength. New plant construction and expansions are reported (Atlanta, St. Louis). Boston reports that the machine tool industry is experiencing rapidly rising orders and backlogs double those of a year ago. Chicago and Cleveland report that steel mills are operating at full capacity and that "near-boom conditions" exist in manufacturing in their districts. Chicago reports that one large steel producer has started rationing, because orders exceed capacity.

Most Banks reported mounting concern about inflationary pressures and many district reports noted dissatisfactions with Phase 3 (Boston, New York, San Francisco). The feeling that Phase 3 has triggered "a new wave of inflationary expectations" (New York) and that inflation was again the major economic problem was widespread. Philadelphia reports that two-thirds of surveyed firms are currently encountering rising costs for raw materials and over half are charging higher prices for their goods. Boston notes that skyrocketing price increases for materials appear to be coming from medium-sized firms which are not being carefully scrutinized under Phase 3 rules.

District reports on agriculture do not indicate any immediate alleviation in the supply-demand imbalance. Heavy rains are reported as delaying plantings (Kansas City and St. Louis) and hampering the movement of livestock to market (Kansas City), while transport delays have held up grain shipments (Chicago). Dallas, however, reports favorable conditions in the Southwest and the shifting of acreage into crops in short supply. Cleveland, Chicago, and Kansas City report that farmers responded to the meat boycott by withholding supplies, thus keeping up prices, but that this may lead to heavy marketings in the coming weeks.

Bank loan demand was described as very high (San Francisco, Chicago, Richmond, St. Louis, Kansas City, Boston). Reactions to the proposed dual prime rate were mixed, but those commenting saw administrative complications. San Francisco notes concern that the
two-tier system will be "the first step toward a complex system of selective credit controls," while Kansas City and Minneapolis report concern that the community's size or whether it is a national or regional borrower be taken into account in defining large and small businesses.