Second District directors and other business leaders who were contacted recently continued to express concern over the potential impact on the economy of the energy crisis, the mounting shortages of materials, and the persisting strong inflationary pressures. The rise in the cost of living was widely expected to result in increasing militancy on the part of labor, with little hope for continued moderation in wage settlements. The respondents in general felt that the expected decline in economic activity would not have a serious impact on the liquidity or solvency of large firms, but that many smaller businesses might be badly hurt. Responses of officials at mortgage lending institutions suggested that current District construction activity remains in the doldrums, but that a significant improvement can be looked for in the second half of the year.

Opinions varied as to whether the underlying energy situation had changed during the past month or so. A number of respondents saw no significant change in its adverse implications for the economy, foreseeing a continual gradual deterioration in economic activity. Among others, the president of a nationwide drug manufacturer and a senior official of another leading medical products firm both pointed to difficulties faced by their firms as a result of petrochemical shortages, while the chairman of a large New York City bank referred to the "steady breakdown effect" on the economy of the energy crisis as well as of growing shortages of materials. Another New York City banker felt that, on the basis of talks with his contacts in the oil industry, current estimates of the potential increase in U.S. oil production were probably overly optimistic. On the other hand, the chairman of yet another large New York City bank felt that the oil shortage resulting from the Arab embargo would be somewhat less severe than originally anticipated, a view shared by several other respondents.

Concerning the wage outlook, the Buffalo branch directors did not report concrete indications of increased militancy on the part of labor in western New York, but felt that continued inflation would lead to an increasingly militant stance. Except for scattered areas and small industries where labor is aware of the threat of unemployment, the directors expressed little or no hope for continued moderation in future wage negotiations. Similar views were expressed by a number of head office directors and senior officials of major nationwide and multinational firms. In the same vein, the chief economist for a large apparel labor union warned that union leaders "could contain union members only so far."

Expectations were mixed regarding the impact of the anticipated slowdown in economic activity on the liquidity or solvency of business firms. The most representative view was that such a decline would not severely affect most large companies, particularly those that enjoyed substantial profits in 1973, but that many small and medium-sized businesses were already experiencing cash flow difficulties, and that others would be similarly affected in the near term.

Current conditions in Second District residential construction generally remained weak, according to an informal survey of District mortgage lending institutions. The respondents all expected relative softness to persist over the near term, but most anticipated a gradual pickup as the year progressed, and looked to significant strengthening over the last two quarters. Among the reasons most frequently mentioned for the current softness were uncertainties regarding the economic outlook on the part of potential home buyers, the high cost of homes, high interest rates and, perhaps more important, relatively large downpayment requirements.

Overall, conditions appear particularly tight in the New York City metropolitan area. An official of a large New York City savings bank that operates in the city as well as its suburbs thus noted that while a strong underlying demand for housing was still there, in the light of subnormal net inflow of savings deposits, his bank has been eliminating many potential borrowers by requiring a 20 percent downpayment on residential housing. The shortage of gasoline in the New York area reportedly has discouraged some potential buyers from purchasing homes in the suburbs. However, some respondents away from the immediate New York metropolitan area painted a somewhat brighter picture with savings banks in Fairfield County, Connecticut; Long Island; and upstate New York reporting a slight improvement in recent weeks in net inflows of funds and a concomitant slight increase in their mortgage lending.