Executives in the Third District report that business activity is still increasing, but at a slower rate. Manufacturers' new orders, shipments, unfilled orders and delivery times are all up again this month. Employment rose slightly. Plans for larger investment expenditures are contributing to the advance. And domestic economy cars are selling very well. However, on the darker side, reports of price increases are widespread and disintermediation is a serious problem at savings institutions.

This month's business outlook survey of manufacturers in the Third District indicates activity is rising more slowly than in previous months. The majority of firms responding to the survey report no change in their new orders, shipments, backlogs of unfilled orders and delivery times since last month. Of the minority of firms reporting changes, most are experiencing increases in these measures of business activity. Looking ahead six months, the executives report expectations of slight reductions in their level of manufacturing activity. Employment opportunities are increasing at a few firms. Thirteen percent of the responding executives report increases in the length of the average workweek of their employees and 17 percent of the firms report increases in the number of people employed this month. The longer run outlook isn't as favorable. Although most firms expect no changes in the next six months, a few more firms are expecting the length of their employees' average workweek to decrease than are expecting it to increase.

The continued high level of business activity in the Third District is causing businessmen to increase their investment spending plans. Inventory investments are expected to increase slightly in the six months ahead. The number of firms that plan to increase their plant and equipment outlays is more than double the number planning reductions.

Auto dealers in Philadelphia are experiencing strong demand for autos and trucks. Demand for medium-sized and compact cars is strongest. However, one dealer reports an excess inventory of what he called "the tank-sized cars" because people wouldn't buy them. He attributes this to consumers increasing dislike for "big polluting gas-hog" models. Department stores are experiencing strong seasonally adjusted sales. The new conservative men's clothes and consumer durables are selling well.

Inflationary expectations are high; 65 percent of the respondents reported paying higher prices than they were charged for the same goods last month. Thirty percent of the firms reported charging their customers higher prices. The six-month outlook is even worse, since well over 70 percent of the responding firms expect to pay, and to receive, higher prices.

Area bankers report that strong loan demand is exceeding deposit inflows, forcing them to buy funds in the money markets and at the discount window to keep from turning away valued customers. Several banks report that loans to nonbank financial intermediaries are at record highs; disintermediation and seasonal property-tax withdrawals have reduced savings institutions liquidity. One banker said the savings and loan associations were in a credit crunch, but that banks were not.