Second District directors and other business leaders who were contacted recently reported that economic activity remains very brisk, but that a number of problems plague businessmen. Particular concern was expressed over shortages of raw materials, rising costs, the high level of short-term interest rates, and the uncertainties surrounding the Government's economic program. Little change was reported in labor market conditions, with continued reports of shortages of skilled technical and managerial personnel. Views regarding the outlook for retail sales were mixed, but the respondents on balance looked for some tapering in the rate of growth of consumer demand over the coming months. Consumer resistance to high food prices was not generally expected to have a lasting effect on such prices.

Concerning the retail sales outlook, the president of a large chain of retail stores anticipated a slowdown in business over the coming months, notably with respect to consumer outlays on durable goods. The chairman of the board of a large New York City bank also expressed concern over the outlook for retail sales in the fall and winter of this year. In his view, sales have been stimulated partly by expectations of higher prices. He felt that the currently high rate of consumer spending is unsustainable and that the heavy burden of installment indebtedness would lead to some "consolidation." On the other hand, a New Jersey banker reported that retailers in his area expected an "excellent" fall season. Most of the Buffalo Branch directors also regarded the sales outlook as good for the rest of the year and well into 1974, but a number of these directors expected a somewhat slower rate of growth in 1974 than in 1973, and looked for weakness developing in big ticket durables—notably automobiles. A senior official of a large multinational firm headquartered in Rochester characterized the retail sales outlook as "bleak," in good part because the increase in food prices will leave consumers with less to spend on nonfood items.

In this connection, the respondents in general felt that consumer resistance to high food prices would have little lasting impact on food prices. The New York banker noted that consumer boycotts might actually have a perverse impact by discouraging farmers from increasing production. He did feel, however, that shifts in consumption patterns induced by high prices of certain items—such as beef—might keep some prices from rising as high as they otherwise might. Similarly, the president of the retail chain felt that consumer resistance to high food prices has had some short-term effect, and that in the future consumers were likely to show a greater tendency to adjust buying habits in response to sizable price movements. The Buffalo Branch directors observed that food had first priority in the consumer's budget and that any stabilizing effect on food prices would have to stem more from the supply side—where shortages now prevail—than from the demand side. In their view, food price increases reflect higher production costs and food prices are finally "catching up" with the rise in other prices.

Concerning the employment picture, the majority of the respondents saw little change over the past month. With scattered exceptions, most of the directors noted a continuing shortage of skilled labor. The president of a large retail chain thus noted a tightening in the market for various types of positions in the retailing industry, and felt that in general competition had increased for managerial and technical personnel in many areas, including real estate and the computer field. Similarly, the New York banker reported hearing about shortages of skilled labor in the machinery and textile industry. The Buffalo Branch directors noted the continuation of the tight labor market conditions that lave prevailed for some time in western New York, particularly in the machine tool trade, and in seasonal farm labor. A major exception was the Buffalo area, which apparently has not been significantly affected by labor shortages.

Among the major economic problems foreseen for the balance of 1973 and in 1974, a senior official of a large chemical firm cited the shortage of raw materials and fuel, and the disruptions and uncertainties surrounding Phase IV as his firm's main concern. Similar sentiments regarding Phase IV, growing shortages, and rising costs were also expressed by several other directors and businessmen. The New York banker looked for some decline in economic growth. The retailer mentioned slackening consumer demand and rising interest costs as the problems most concerning his firm. And several of the bank directors also felt the "high cost" of money to be one of the major problems from the standpoint of their operations.