The District's economy is mixed with signs of softening and areas of continued strength. Employment has leveled off, while unemployment has risen significantly, primarily in response to cutbacks in manufacturing. Weakness in manufacturing stems largely from reduced operations by motor vehicle producers and suppliers, and to some extent it also reflects the distortions caused by the recent trucking strike. Capital goods producers report good business conditions for their industry and are now somewhat more optimistic regarding the near-term economic outlook. The demand situation in the steel industry also remains good, but the availability of coal has recently become a major problem. Housing is severely depressed, although nonresidential building continues to show strength.

Early returns from our monthly survey of manufacturers suggest some further softening in key series during February. New orders declined slightly, following a leveling in January. Gains in shipments, backlogs, and inventories all slowed sharply last month. Manufacturing employment also started to decline. (Since November, total nonfarm employment has stopped growing, while the District's seasonally adjusted unemployment rate has risen 0.8 percent.) Long delivery times continue to trouble the majority of firms, although there are scattered signs that the situation is beginning to improve. Recent price increases have been pervasive. In February, higher prices paid were reported by the largest proportion of firms in the ten-year history of our survey.

Representatives from four capital goods industries headquartered in Cleveland expressed somewhat more optimism over the outlook for 1974 than they did a month ago. Reasons for this change include less uncertainty over fuel and a lack of signs indicating a cumulative decline in economic activity. An official with a major petro-chemical firm believes that the energy problem is not so bad as it was expected to be by his management as recently as a month ago and that consumers have probably adjusted to higher prices and shortages of fuel. A steel representative feels more confident because of the ease with which his firm and the industry have been able to absorb cancellations by the auto industry. Sustained strength in capital goods and the absence of a downward spiral in key sectors of the economy are among other reasons for increased optimism.

Economists from steel firms report underlying demand remains greater than the industry's capacity to produce. The steel firms have changed their output mix this year—producing more structural shapes, plates, and tubular steel and less sheet steel. Major problems confronting the steel industry are the inability to accumulate coal inventories and a tight supply situation in steel scrap. One major steel company has been forced to reduce operations because of coal shortages worsened by the West Virginia coal miners' strike. In addition, there are complaints by steel companies that Government regulations allow utilities to pay $20 a ton more than other industries. Removal of price controls on coal will help the matter according to steel industry sources. Shortages of steel scrap are hurting the mini-mills (with their electric furnaces) more than the big mills, which rely mainly on basic oxygen furnaces.

In the construction sector, housing remains severely depressed. Since early 1973, the decline in residential construction contracts has been more pronounced in the District than in the nation. Nonresidential construction contracts, on the other hand, have been registering strong improvement. Major banks are not actively soliciting real estate loans, as has been the case for many months. Savings and loan associations appear to be more active lenders since the year-end.