Bank directors had mixed views on how Phase IV should be structured, but generally supported tighter fiscal policies to accompany the new wage-price control program. District labor markets were characterized as tight, and skilled workers were in many cases scarce. District businessmen continued to be confronted with shortages; in some instances a lack of materials has actually slowed District business activity. Further advances in District consumer spending were reported and District retailers anticipated no immediate letup in their sales growth.

Bank directors' opinions varied on how Phase IV ought to be structured. Two directors believed Phase IV should concentrate on those industries that are significantly contributing to our current inflationary situation—industries where price increases are the most visible. Another view was that big companies and unions should be required to inform the government of proposed wage and price increases. One director wanted Phase IV controls to be as flexible as possible, and another director voiced opposition to mandatory wage-price controls. One director expressed a personal dislike of wage-price controls, but believed that such controls would be necessary for some time in the future.

Although their views varied, bank directors generally favored tighter fiscal policies to accompany Phase IV. A cutback in the investment tax credit was favored by one director and another felt several measures to tighten fiscal policy would be necessary to deal with our current inflationary situation. Rather than raising taxes, one director advocated cutting expenditures. Another director voiced his opposition to increasing personal taxes because, in his opinion, tax increases would only result in higher wage demands since inflation has already eroded a considerable amount of workers' purchasing power.

According to the bank directors' responses, District labor markets were characterized as tight. Employment conditions have improved recently in the upper peninsula of Michigan, and a Wisconsin director indicated that unemployment was not a problem in his community because local industries were expanding. A South Dakota director reported gains in his state's manufacturing activity and disclosed that workers were in short supply. A Minnesota director reported an abundance of summer and college educated workers but a lack of workers for permanent year-round blue collar jobs. A director from southeast Montana revealed employment gains in his area and stated that labor shortages existed for workers in the service industries and farm workers. A director from Bozeman, Montana indicated a shortage of construction workers in his area. A North Dakota director, on the other hand, disclosed no lack of employable workers in his state.

Various material shortages continued to confront Ninth District businessmen .and in some instances shortages have curbed District business activity. A South Dakota director indicated that spare parts for agricultural machinery were in very short supply and that new farm machinery was almost impossible to obtain. A small manufacturer in his area has been unable to expand operations because of a lack of steel. A director associated with the construction industry revealed that cement and reinforcing steel continued to be in tight supply and indicated that a lack of spare parts was also a construction industry problem. Two large Minneapolis/St. Paul manufacturers reported difficulties in obtaining electronic components and one firm disclosed these shortages have slowed down production. Also, a lack of kraft paper has restrained the output of another Twin Cities firm.

Several directors indicated that their areas' businessmen were continuing to express concern over the gasoline situation, and gasoline shortages have affected the District's tourist industry. In the upper peninsula of Michigan a 10 percent decline in tourist business from a year ago was attributed to the gasoline supply situation. In North Dakota slow business at that state's major tourist attraction was also attributed to the gas supply problem. In South Dakota no expansion in tourist activity was foreseen. In Montana, on the other hand, tourist business has been good so far this year. One Montana director voiced the opinion that the concern over gas shortages has caused individuals to take their vacations earlier and his area experienced a good June tourist business.

District consumer expenditures have continued to expand and further increases in consumer spending are anticipated throughout the summer and into early fall. Large Ninth District retail stores reported recent sales running 8 to 10 percent above a year earlier, with particularly strong sales outside the Minneapolis/St. Paul metropolitan area. Most survey respondents attributed their sales increases to improved farm income and to strong sales of durables accompanying new home purchases. Survey respondents expected sales increases in the 8 to 10 percent range to continue through the summer, with possibly some tapering off this fall. Retail sales in rural areas were expected to remain strong through 1974.

Area automobile dealers reported phenomenal rises in new car sales this spring: trucks and smaller cars were selling particularly well. Several dealers noted that sales of smaller cars were well in excess of their manufacturers' capacity to produce these models. Most dealers stated that gasoline mileage has become of great importance to new car buyers and cited this as a major reason for the sharp rise in sales of smaller automobiles. Truck sales this spring have been 20 percent to two-thirds higher than a year ago, with most of the increase again attributed to higher rural incomes. Auto dealers, however, were concerned that current high sales may be displacing potential sales for the 1974 model year.