According to Second District directors and other business leaders contacted recently, consumer spending continues strong, in part stimulated by expectations of higher prices. Residential construction also remains at a high level, on balance, although signs of tapering off have emerged. Shortages of raw materials, of energy, and of some semi-finished and finished products appear to be growing. The further recent devaluation of the dollar, combined with the previous devaluation, in general was expected to bring about an improvement in the country's international trade balance.

Most respondents reported continued strength in consumer spending despite increased consumer uncertainties regarding the economic outlook, notably a growing concern over inflation. It was the consensus of the Buffalo branch directors that the deterioration in consumer confidence had in fact been reflected in a "rather broad- based" increase in retail sales, which some of the directors viewed as an attempt by consumers to "beat" anticipated price increases. In the case of automobiles, the desire to avoid paying for the additional safety and pollution-control devices mandated for 1974 was noted as a factor pushing up current sales. The president of a large nationwide chain of retail outlets stated that despite surveys showing a decline in consumer confidence, retail sales continue very strong, with sales of durable goods leading the way. And the president of a chain of department stores in the New York City area similarly reported a good demand for durable goods, which he also linked to a desire to avoid paying anticipated higher prices. This respondent, however, felt that in general the pickup in business on the East Coast was lagging behind the national performance.

The respondents in general continued to find the home-building picture strong although a number saw some evidence of a tapering off. A Rochester banker, who reported construction in his area was still booming, said that there has been a significant shift from apartment building to condominium and town house construction, and that construction of single-family residences was proceeding at an active, but more selective pace. The chairman of the board of a multinational oil corporation and the president of a large nonferrous metal-producing corporation both reported they saw no evidence of a cutback in residential construction. A senior official of a large Rochester multinational firm, however, reported some decline in residential building, characterizing last year's national high housing start rate as "not sustainable." Another director felt that the housing boom gave indication of tapering off. In regard to nonresidential construction, an upstate banker mentioned the high level of commercial construction that was still related to the rebuilding of businesses destroyed by Hurricane Agnes last June, However, a New Jersey banker reported a glut of office space in his area, while the president of a New York City real estate firm reported that at least 20 million square feet of commercial and industrial building space was currently vacant in the city.

As in recent previous months, the respondents referred to a growing list of shortages of certain resources. The official of the Rochester multinational firm stated that raw material shortages were widespread, including such items as wood products, coal tar derivatives, and other products. A Buffalo manufacturer expressed concern that a period of tight supply was imminent, as evidenced by the fact that his firm was being confronted with 20- to 30-week lead times for many raw material items. A New Jersey banker reported inventories of firms in his area to be low, with six- to eight-month delivery times for new orders. The owner of a large upstate agricultural enterprise mentioned a shortage of protein in all forms, which was increasing the cost of feed items for poultry and livestock. A number of respondents commented on the petroleum products shortage. According to the chairman of the international oil company, worldwide supplies of crude oil remain tight, and U. S. production of fuel oil has peaked and is expected to decline. The recent relaxing of oil import restrictions should help, but lie felt that environmental controls were hindering domestic output. Similar sentiments were expressed by a senior official of a firm producing a wide variety of petroleum products. The president of the nonferrous metals producer noted that power shortages in certain areas were adversely affecting aluminum output.

The dollar devaluation was viewed as likely to improve this country's international trade position, both on the import and export side. True, the higher dollar costs of oil and nonferrous metal imports were cited as adverse factors. The New Jersey banker, however, said that export sales have increased substantially—although he felt it was difficult to estimate the extent of the basic improvement due to price increases and sales to Russia and China. The Buffalo branch directors generally agreed that the exchange rate realignments would have a "positive" impact on our trade balance. One director specifically mentioned that a Rochester machine tool firm, which exports about 70 percent of its output, now expects its overall sales to increase substantially. On the import side, the president of the large nationwide chain of retail outlets expected the devaluation to slow the growth in the dollar amount of imports of his firm. He stated that in terms of cost, the balance had now been swung in favor of certain domestic goods, for example, some types of consumer electronics. Also, a Buffalo director felt the devaluations have made it easier for this country's automobile industry to compete with imported cars. He also noted that the domestic shortages noted above in part reflected a switch by many buyers from foreign to domestic sources.