General business conditions in the Third District have begun to soften and are expected to deteriorate in the months ahead. Production activity continues to move ahead slowly, but respondents to this month's business outlook survey foresee reduced activity in the months ahead. Employment opportunities still exist, and layoffs are not a significant problem at the present. Inventory spending is about level, but plant and equipment spending plans are still strong. Retail sales have slowed a bit more than usual at Philadelphia department stores. Bankers are experiencing continued deposit inflows, but certain categories of loan demand show signs of weakening. However, prices are still climbing and are expected to continue to do so in the next six months.

There is a divergence between current business activity and what the respondents expect six months in the future. At the present time, the majority of area manufacturers are experiencing no change in their new orders, shipments, and unfilled orders. Of those experiencing changes, a few more are reporting increases than decreases. In contrast, the six-month outlook reported by the same respondents is less optimistic. Only a minority expect increases in their new orders, shipments, and unfilled orders.

The employment market in the Third District is stable with over 85 percent of the respondents reporting no change this month in their number of employees and the length of their average workweek. By summertime, however, one in five expects to be laying off workers. Most of the remaining firms expect to hold their labor forces constant through the first half of the year.

Inventory investment is increasing at a few more plants than it is decreasing, and the six-month outlook is for no change in overall inventories. But capital equipment spending should be a source of strength in the coming months, as 45 percent of the firms report plans to increase their capital expenditures.

Philadelphia department store executives report that energy-conserving goods, such as fireplace equipment and blankets, are selling very well, but sales on postponable items, such as appliances, and credit sales are off a bit more than usual for this season.

Prices continue upward on a broad front, as nearly 80 percent of the area respondents report paying higher prices for the goods they buy and half report charging higher prices. The inflation is expected to accelerate, as over 75 percent anticipate paying and receiving higher prices as summer nears.

Area bankers report that total deposit inflows are outplacing loan extensions. Changes in time deposits are insignificant at the banks contacted, but demand deposits are rising. At the same time, consumer loans are off a bit and business loan demand shows signs of slackening. Only mortgage loan demand is maintaining strong growth.