Second District directors and other business leaders who were contacted recently were unanimously critical of the price freeze and called for its early termination. Some had already encountered distortions in their operations owing to the freeze, while others had not yet felt any direct impact on their business. All, however, foresaw serious dislocations if the freeze were to continue much longer. The sustained buoyancy of retail sales in general continued to be linked to expectations of further price increases. No evidence of business inventory buildup was reported.

All of the business leaders surveyed in the Second District shared the view that the price freeze was likely to lead to serious market distortions. The feeling was generally expressed that the temporary freeze should be terminated quickly and that Phase IV of the Administration's program should be formulated and implemented as rapidly as possible. In this connection, most of those contacted felt that an early announcement of "strong" controls was an absolute necessity, while some of the directors expressed disappointment that Federal fiscal policy had not "faced up to its responsibility in the current situation." The president of a tire and rubber manufacturing concern expressed the hope that the country is headed for "controlled inflation rather than what we are presently experiencing" and suggested that the Government should provide some indication of its plans if it is going "to change the rules of the game."

As far as specific problems were concerned, discussions with the Second District business leaders revealed that serious distortions had already arisen in the agricultural, chemical, petroleum, and some metals industries. With domestic prices of a number of items frozen below world market prices, the freeze was said to be causing shortages by hampering imports of essential materials and by encouraging sales abroad. For example, an upstate manufacturer pointed to the difficulties resulting from the continued rise in the cost of imported raw materials, which could not be reflected in the prices charged by his company. Similar experiences were reported by a number of other respondents. An upstate banker cited a serious shortage of specialty steel and reported that a number of small machine tool manufacturers in his area were being forced out of business as a direct result of the freeze. Special concern was expressed over the situation in agriculture, where poultry and hog production was being seriously disrupted. It was predicted that critical shortages of feed-stuffs and fertilizers, resulting in part from the freeze, might cause food shortages later on.

Regarding consumer spending, the directors felt it was still too early to assess the impact of the freeze on consumer attitudes. However, they saw consumers as willing to pay whatever prices were necessary to purchase goods they currently wanted. As in previous months, the current high level of retail sales was attributed to expectations of further price increases. A Buffalo banker, however, reported that "considerable apprehension" regarding the future demand for automobiles had been expressed at an economic briefing he had recently attended in Detroit. To some extent, the forecasted decline in demand was attributed to the pollution-control devices mandated for future model years.

Regarding business inventory positions, the respondents reported seeing no evidence of a buildup at this time, partly because of the high cost of financing inventories. The upstate manufacturer, however, reported that while his firm was concerned about low inventories, it was having difficulty in strengthening its inventory position because of increased sales.