The present state of the economy is very strong, and the outlook for the remainder of the year is for continued strength, according to a number of the home office and branch directors of the Kansas City Federal Reserve Bank. However, these opinions were tempered by concern over recent price behavior and the prospects for further price inflation and excessive wage demands during the course of this year. Expectations of a temporary dip in meat animal prices (reported in the April Redbook) were corroborated by the most recent farm price report, but severe weather resulting in heavy losses of cattle and calves and substantial impairment to weight gains, as well as the recent banning of "DES," may further aggravate the rise in future feed costs. District banks continued to report heavy business loan demand in April. They expect loan demand to remain strong over the next three months, with commensurate upward pressure on loan rates.

Telephone interviews with a number of Tenth District nonbank directors of the home office and its three branches elicited a general consensus as to the present and expected future strength of the economy. Despite their generally optimistic views, however, a number of the directors expressed concern over present and expected inflation, particularly insofar as it would affect the terms of settlement of future collective bargaining agreements. At the same time, expressions of concern were voiced as to the longevity of the present boom beyond this year, given the rapid pace of present activity, and given what a number of directors viewed as a general uneasiness on the part of the public which might impair consumer confidence. Thus, while present signs in the district, particularly the strength of the agricultural sector, all tend to encourage optimism regarding the outlook, the directors were almost unanimous in tempering their optimism in looking much beyond the end of this year.

Farm prices dropped 1.5 percent during the month ended April 15, the first decline in 12 months. But prices still averaged nearly one- third higher than a year ago. More recently, meat animal prices, which led the downturn last month, have been steady to weak, while grain prices have been generally stronger. Smaller-than-anticipated grain stocks as of April 1 and continued uncertainty about spring planting have sparked a new round of speculation in the grain markets. Weather conditions within the district appear to be somewhat more conducive for field work than in many other regions. Some planting has occurred, and with favorable weather the prospects are reasonably good that most crops will be planted on a timely schedule. The wheat crop reportedly is in excellent condition, particularly in Kansas where a record harvest is expected.

The weather, however, continues to plague the livestock industry. An April snowstorm resulted in heavy losses of cattle and calves in localized areas of the district. A recent survey of five counties in southeast Colorado showed death losses this winter of 40,000 head, of which more than one-half were young calves. When compared to the January 1 inventory, however, this represents a loss rate of less than 2 percent. More serious is the effect that the adverse weather has had on weight gains. Rates of gain have been reduced significantly in many feedlots, and the recent banning of "DES" will probably further aggravate the rise in costs as well as the slowdown in beef supplies. However, while death losses and slow gains may seriously impinge on individual producers, there may be a tendency to overestimate the effect on total meat supplies in the United States.

District banks continued to report heavy business loan demand during April. Reflecting this demand, and in accordance with the guidelines announced by the committee on interest and dividends for the dual prime rate, all survey banks joined with the nation's larger banks in raising their prime rate to 6 3/4 percent.

Moreover, with current business loan demand being exceptionally strong, most bankers felt that the prime rate would more than likely rise to 7 percent in the next few weeks. District bankers also expected loan demand to remain strong over the next three months, thereby resulting in continued upward pressure on bank loan rates. Because deposit growth had not kept pace with loan demand, most banks contacted were relying heavily on borrowings from the Federal Reserve banks, purchases of federal funds, and sales of CDs to supply additional loanable funds. A few banks also had permitted investments to decline to levels where most of their remaining securities were pledged to match public funds.