Second District directors and other business leaders who were contacted recently in general were somewhat less pessimistic than last month regarding the overall economic impact of the energy crisis. The respondents did not expect a cutback in business plans for plant and equipment outlays, and in their view consumer spending remains strong, at least at this juncture. However, the respondents did see an actual or prospective increase in unemployment in a number of industries resulting from the petroleum shortage. The current weakness in residential construction was attributed primarily to high interest rates and high housing costs rather than to a shortage of mortgage funds.

Regarding the overall impact of the energy crisis, the president of a large petroleum products firm stated his belief that essential industries would get all the oil products required, and that any potential gap in supplies would be met by cutbacks in pleasure driving and in other nonessential oil uses. In his view, the impact on the economy of the oil shortage would turn out to be less severe than had seemed likely initially. He felt that current crude oil prices should provide sufficient returns to oil companies to permit them to launch large-scale research programs to develop alternative sources of energy. He foresaw a sharp increase in gasoline prices, however, and felt that the allocation of gasoline should not be left "in the hands of the man at the gas pump", but that mandatory rationing would probably be necessary.

The respondents generally felt that the energy situation would not lead to substantial cutbacks in business plans for plant and equipment outlays. The Buffalo branch directors thus reported that while investment plans were being restudied in light of the energy situation, they believed that such plans would not be significantly changed given the current high rate of plant capacity utilization, the prospect for continued inflation, and the shortages of a growing number of items. Indeed, the directors felt that while the energy situation would affect certain industries more adversely than others, they expected that the overall effect of recent economic developments would be to stimulate business plant and equipment spending. As examples, they cited specific plans of a number of firms for large-scale capital outlays and reported that agricultural equipment manufacturers were sold out far in advance and required additional manufacturing facilities. Several other respondents also indicated that their firms were "sticking" to their long-term capital investment plans, although some saw the possibility that part of some investment programs might have to be deferred because of shortages of materials. A senior official of a large chemical corporation reported that owing to the uncertainties associated with the energy crisis, capital spending plans were being trimmed in some industrial sectors but that such reductions will have little or no effect on capital outlays over the near term because of the long lead time involved in most capital investment projects.

In the view of a number of respondents, the current consumer spending picture continues strong. The president of a large New York City department store with branches in the suburbs thus reported that his firm had enjoyed a high level of business over the holiday season, both in volume and dollar terms, and that sales had remained strong after Christmas. He noted the possibility of "scare buying", against prospects of rising prices and shortages, but stated that he could not determine if this were the case. The Buffalo branch directors characterized retail sales in Western New York during the Christmas season as good to excellent. Strong post-Christmas sales were also reported in that area, a development which in the view of these directors suggested that there was no "hold back" in consumer spending at this time. The president of a nationwide department store chain, however, felt that the sale of durable goods had become somewhat softer, while an upstate banker reported some reduction in the demand for consumer credit at his bank. The retailers in general did not think the gasoline shortage would have much of an adverse effect on their suburban stores; most of their customers reside nearby, and some expected that women shoppers driving to shopping centers would spend more time at these centers, concentrating their purchases at one time.

The employment picture was more somber. A number of respondents cited actual or prospective lay-offs, not only in the airline and automobile industries, but also in the tourist and related industries, as well as in several other key industries, particularly those using petrochemicals.

None of the respondents expressing an opinion on the residential construction situation believed the decline in activity in that industry to be traceable to a lack of available mortgage funds at this time. Rather, major deterrents to home-building were seen as high interest rates, the high and rising cost of land and of new housing, shortages of building materials, overbuilding in some regions, and the termination of certain Government-sponsored housing programs. The Buffalo branch directors also felt that energy uncertainties-both as to heating fuels and as to possible gasoline rationing—could have a potentially serious impact on building in the suburbs.