Purchasing managers at Tenth District manufacturing firms reported that nearly all materials are in short supply, with no easing of the situation in sight. Lead times are considerably longer than normal, and are lengthening. Prices are rising sharply and are expected to continue to rise. Although larger inventories are desired, firms are unable to increase them for several reasons. Business loan activity at District commercial banks has decreased, for both demand and supply reasons. In the agricultural sector, higher farm prices will maintain pressure on food prices although greater stability should occur in the months ahead.

Purchasing officers and managers at a number of manufacturing firms in the Tenth District were interviewed with regard to their materials supply situation, including availability, lead times, prices, and inventory plans. The composite picture resulting from this survey was one of uncertainty and disarray. The following quotation from one respondent captures much of the feeling of disorder: "The whole raw material situation is very unstable. You cannot be sure that you will get the quantity you ordered, you cannot be sure you will get it when you want it, and you cannot be sure of the price you will have to pay." Nearly all materials were reported to be in tight supply, with some simply not available. Many firms find themselves facing materials allocations and allotments from their suppliers, which in some cases are less than the desired amounts. Furthermore, the purchasing managers do not anticipate an imminent easing of the situation. The following materials were specifically mentioned as being in short supply: textile products, especially burlap; paper and paper products, including containers; aluminum; plastics; petroleum products for manufacturing purposes, including solvents; metal castings; and steel, especially so-called "low profit" items—with specific mention of reinforcing bars.

Purchasing managers almost unanimously report that lead times are now considerably longer than normal on virtually all materials ordered, and nearly all report that lead times are continuing to lengthen. Among the products and materials showing lengthening lead times are plastics, metal castings, steel products, electronic components, and electric motors. One firm estimated that lead times now are generally about four times their normal length, very close to the average increase in lead times for those items specifically reported.

Prices of materials are reported to be rising by nearly all respondents—"enough that it hurts," said one. In a few instances, firms reported that they had been able to protect themselves by contracts for the rest of this year for materials such as aluminum, textiles, and plastics. Further significant price increases are almost universally expected. The majority of respondents suggest that it is still too early for the influence of Phase IV rules to be ascertained. Several commented on the importance for future price movements of decisions that will be made on pending requests for increases, with the steel industry request singled out for particular attention.

Increasing voluntary accumulation of materials inventories is very exceptional among the Tenth District firms surveyed. Several reasons were given by purchasing managers: high interest rates are a deterrent ("money is too expensive for building inventories"); materials are not available or in such short supply that inventories cannot be greatly expanded; allocation of materials by suppliers prevents further stock building. Some respondents stated that they could not keep production at desired levels with available materials, and thus could not add to inventories although they wanted to. The only reported instances of stock building as strictly a price hedge were from one heavy user of copper and another of polyethylene, both of whom expect significant price increases.

A rise of 20 percent in the month ended August 15 pushed farm prices more than 60 percent above a year earlier and intensified the pressures on food prices, pressures that will continue to be felt for several weeks. However, there are indications that the upward spiral in food prices may soon start to level out. Consumer resistance to high retail prices has induced a lowering of live animal prices, especially hogs which have dropped significantly from their August high. Grain prices have also weakened during this period, reflecting new crop prospects and slightly dampened foreign demand. Furthermore, with the lifting of the freeze on retail beef prices, cattle prices may dip somewhat if a bulge in marketings develops over the next few weeks. However, any decline is likely to be temporary. On balance, food prices should tend to stabilize in coming months, but hoped-for declines of a significant magnitude are still sometime off.

A decline in business loans over the last few weeks at Tenth District banks has been due to both tighter supply conditions and decreased demand. Banks in Denver and Kansas City tended to stress the supply side, saying they were only making loans to old customers, and then very selectively. Potential new customers who had exhausted credit lines at competing banks and were shopping around for additional credit sources were being turned down. In other District cities a distinct slackening in loan demand from businesses has been noted in recent weeks. Resistance to higher interest rates was one reason cited for this decline. Demand in some other loan categories (e.g., consumer loans and loans for carrying grain inventories) continues to be strong.

Aggressive marketing of consumer and large CD's has offset demand deposit declines at District banks. Large CD maturities are being kept short at most banks as a decline in short rates is expected soon. The public's enthusiastic response to the 4-year consumer CD's was something of a surprise to many bankers who soon realized that most of this money was coming from passbook savings in their own banks.