Second District directors and other business leaders who were contacted recently reported that demand pressures remain intense, and that materials shortages, capacity limitations; and delivery delays are continuing to hamper production in many industries. The respondents generally felt that current capital spending plans for 1974 would hold up even if the widely forecast slowing in the growth of the economy materializes. A moderate increase in the availability of mortgage funds during coming months was expected, paralleling an anticipated recovery of deposit flows to thrift institutions.

The respondents generally saw no evidence of any easing in the intensity of demand pressures. Indeed, most felt that the materials shortages, capacity pressures, and delivery delays were still "predominant", and in some instances, increasing. A senior official of a large chemical concern reported that demand pressures in his industry have intensified and that shortages have developed to an extent leading to substantial business slowdowns. Another director reported that shortages and delivery delays for fuel and raw materials, including petrochemical products and steel, were expected to slow economic activity in the upstate New York area. The president of a large non-ferrous metals producer reported that shortages in the copper industry are approaching Korean war proportions and that zinc is also in very short supply. Similar observations were made by senior officials of several other major firms in the metals industry. A vice president of a large multinational packaging products firm, moreover, reported that the shortage of paper was hampering his firm's operations.

The only sector where any respondents noted an easing of demand pressures was the consumer sector. One director observed that sales of consumer durables, both automobiles and home goods, appear to be slowing somewhat as a result of heavy purchases over the past year and increasing caution on the part of consumers.

Concerning prospective business capital outlays, all of the respondents who expressed an opinion on the subject felt that current plant and equipment spending plans for 1974 would hold up, even if the generally forecast slowdown in the growth rate of the economy materializes. Most of these respondents felt that owing to the long lead times typically involved in capital spending projects, the funds for most 1974 programs have been committed and many of these projects have already been activated. Some of the business leaders, moreover, pointed to the need for investment in pollution control equipment to meet governmental standards. A number of respondents noted the growing belief on the part of businessmen that current worldwide shortages are likely to persist, inducing businesses to increase operating capacity. A branch director with farming interests predicted a continuation of high capital spending in the agricultural sector as well.

With respect to prospective developments in the mortgage market over the fall and winter, a number of directors felt the availability of funds would meet the demand, but at somewhat higher rates, larger down-payments, and shorter maturities. Thus, an upstate manufacturer felt that while mortgage funds would probably become somewhat more readily available, they still would remain relatively scarce because of the higher rate of return available to financial institutions on alternative investments. The president of an upstate bank, however, reported that the recent declines in market rates and the recent increase in the New York State usury ceiling to 8-1/2 percent have significantly improved the availability of mortgage funds in his area. A New Jersey banker, however, reported that many New Jersey institutions appear to be delaying making mortgage commitments, awaiting an increase in the State's usury ceiling to 8-1/2 percent, despite the increase in deposits at those institutions resulting from the recent decline in money market rates.

In this connection, the directors in general felt that the worst of the recent wave of disintermediation is past, and that interest rate developments might lead to a reflow of consumer time and savings deposits to banks and thrift institutions in the months ahead. The president of an upstate bank stated he expected a "material" rise in consumer-type deposits, not only because of rate developments, but also because consumers in his area appear to be saving more in anticipation of adverse economic conditions next year. Another director, on the other hand, felt that the lower discretionary income levels, resulting from relatively moderate wage increases at a time when prices are escalating rapidly, is likely to reduce the rate of consumer savings.