Business activity in the Eighth Federal Reserve District continues strongly upward. Retail sales have expanded further in recent weeks, manufacturing orders are up, and demand for output continues to exceed the amount that can be supplied at current prices. The labor market is reported to be "tight" over most of the District, but there has been little change in the unemployment rate in most of the metropolitan areas during the past two months.

Excessive demand, inflation, and supply shortages are the major problems of businessmen. Interruptions to output caused by the price "freeze" and raw material shortages have become more general throughout the District. Shortages of forest products, paperboard, gasoline and livestock feed are apparently causing the greatest concern. However, delayed deliveries were mentioned for numerous items. Some increase in the delivery of raw forest products to mills has occurred with the improved weather conditions in recent weeks but paperboard container manufacturers report that there has been no reduction in the lag between orders and deliveries of such products. An engineering equipment manufacturer reported that merely trying to meet demand was now a problem. Also pricing for future delivery is reported to be hazardous because of the uncertainty about future price controls on raw materials and output. An increasing number of firms are refusing to quote prices on such orders.

Most manufacturing firms report that operations are at full capacity. Numerous reports of capacity expansion programs indicate that major increases in capacity are underway. In some cases, however, such plans are being delayed because of the uncertainty caused by public policies with respect to wages and prices.

Retail sales at major department stores in the District have continued upward in recent weeks at about the same rate as during the last twelve months on a seasonally adjusted basis. Representatives of the stores report that their suppliers are not shipping as much as ordered and that for more than a year there have been long delays on delivery of furniture ordered from manufacturers.

The labor situation remains tight throughout the District. Employment continues to rise slowly but the unemployment rate has leveled off after declining for about two years. Representatives of the larger firms report that they can still get help but the smaller firms report that all the good workers they can find are currently employed. A major complaint in the lumber and pulpwood industries is that they can no longer get workers to do timber cutting operations.

Financial markets have tightened throughout the District in recent weeks. Rates on all types of credit instruments have been increased and larger down payments are being required by most lenders, especially on real estate mortgages. One savings and loan association reported that it is no longer interested in residential loans with less than a 20 percent down payment.

The food and agricultural situation has suddenly changed from favorable to disastrous as a result of the recent price freeze. The crop outlook is generally good but timely rainfall throughout the summer months will be necessary for high yields since most crops were planted later than average. Most livestock producers are losing money from feeding at the current feed cost-livestock price ratios. The unexpected sharp increase in feed costs has taken most if not all of the profit out of livestock feeding. Some hog feeders may still be covering their costs, but all cattle, laying hens, and broilers are probably being fed at a loss. Profits are insufficient in all livestock feeding to provide incentive for increased production. Unless relief is quickly forthcoming, the outlook for lower food prices early next year must be revised markedly upward. Some meat shortages are already beginning to develop in grocery stores. Feed dealers and other farm specialists report that farmers are simply not making plans for increased production. Instead of holding back breeding animals for larger output, they are selling them off at lower than normal market weights to reduce losses. Given this condition the supply of meat animals and animal products for market early next year will be reduced regardless of the size of crop harvested this fall.