Inflation continues to be of uppermost importance to most businessmen contacted this month. Most expressed concern over the current fiscal policy stance but wholeheartedly urged continuation of a restricted current credit policy as a means of restraining inflation. Material shortages continue to plague the District economy; labor shortages were also apparent in some areas. Again, several announcements of capital spending plans were noted, some by foreign-based firms. Tourist activity has picked up, but auto sales remain substantially below year-ago levels. Some businessmen have indicated limited inventory building from fear of continued material shortages. The much publicized fertilizer shortage is apparently not as critical as earlier expected. The new minimum wage has had only scattered distorting impact on District labor markets so far.

Reports from many District businessmen confirm the heightened concern over inflation. The term "double digit inflation" is creeping into many businessmen's conversations. They see little relief in sight, with the continued shortages of materials and upcoming wage negotiations putting upward pressure on costs the remainder of this year. These businessmen see "double digit inflation" leading to a growing lack of confidence in our entire financial system. In order to combat inflation and restore confidence, there seems to be universal agreement that a restrictive monetary policy is needed for some time to come.

There seems to be little relief in sight from the materials shortages which have been affecting many businesses and manufacturers. Several construction contractors have noticed a loosening in building material supplies. However, District manufacturers continue to report difficulty and longer waiting periods in obtaining all metals and metal products, paper, and plastic pipe. As reported earlier, some layoffs and increases in unemployment have occurred in parts of the District. However, shortages of skilled workers and craftsmen exist in many areas. Economic activity along the Alabama and Mississippi Gulf Coast is booming. Several new plant announcements have recently been reported. The most recent is a new $40-million cement-manufacturing facility south of Mobile, Alabama; it will be financed through revenue bonds. Tourist activity continues to pick up. The Disney World and the Daytona Beach areas are booming. Tourist and convention business is still strong in New Orleans, particularly at the downtown hotels. Auto sales, though improving recently, remain well below year-ago levels in the District. The regional office of one of the big three auto manufacturers indicates that for the first ten days of May, auto sales in the Southeast are 24 percent below the year-ago period. One brighter note is that truck sales, particularly small trucks, are down only fractionally from a year ago. A report from an importer of Japanese-made cars indicates that unit sales in the Southeast are behind the comparable period last year; but the spokesman said that sales would be ahead if there were cars to sell. Apparently a dock strike in Japan kept them from getting cars to fill all the orders. Several announcements have been made of foreign manufacturers locating plants in the Sixth District; ten such announcements have been made so far this year. In April alone, four were made, 20 percent of the U. S. total.

A survey of several District manufacturers indicates some hedged inventory building has taken place in this region, particularly in steel, paper, fuel oil, and critical machine parts. However, in many cases, manufacturers were simply unable to build inventories because of shortages. Several manufacturers did mention longer lead times in placing orders today. In response to why they were attempting to build inventories, all manufacturers agreed that fear of continued shortages rather than expectations of higher prices down the road was the major reason. There was universal agreement that shortages would continue for some time to come. They also indicated that building inventories strictly for an inflationary hedge would not be profitable today because of the high cost of carrying inventories (i.e., high interest rates on inventory loans). Some indication was given of turning to commercial banks for short-term financing of this inventory building.

Summer supplies do appear adequate for fuel supplies to utilities. The power companies which burn natural gas had supplies curtailed somewhat last winter because the Federal Power Commission has diverted gas to the Northeast, but no problems are expected this summer other than rising fuel prices. One electric utility which had been burning 100 percent natural gas now has the capability of burning 40 percent fuel oil, thus being better prepared for fuel emergencies. A Louisiana power company which had been a 100-percent natural gas user has announced plans to build a coal-fired plant using low sulfur western coal scheduled for completion in 1978 and costing $150 million. Coal-burning utilities in the Southeast are finding it difficult to build inventories. A severe coal miners' strike is expected, but inventories cannot be increased because of the closing of some mines. Coal supplies are apparently adequate for current consumption needs, however.

Although there is a tight market for fertilizer, supplies appear adequate. Earlier reports indicate that fertilizer shortages might precipitate switching some corn acreage into soybeans, but this does not seem to be happening in the District. Heavy rains in the Mississippi Delta area are delaying some cotton plantings. Because of a lack of cold weather this winter, the Georgia peach crop may be as much as 25 percent below last year's.

A telephone survey of employment security offices in the District indicates only scattered and very limited distortions from the increased minimum wage enacted on May 1. Most analysts report it was too early to tell what the total effect would be. However, some domestic workers, yardmen, porters, janitors, and farm laborers are apparently out of work because of the increase in the minimum wage. One report from a large Georgia city indicated that some women have quit their jobs rather than pay the higher cost of employing domestics.