Some easing of demand pressures on the Fifth District economy is suggested in our latest survey. Reports from manufacturers indicate a decline in new orders, the second successive such reduction; and shipments are apparently being maintained at recent levels only through a working down of order backlogs. Also, for the first time since late last summer, the diffusion of manufacturing responses suggests that inventories may be higher than desired. Trade respondents report recent increases in the dollar volume of retail sales, although sales of big ticket items apparently lack buoyancy. Residential building continues in a sharp slump, and recent reports indicate that the current stringent credit conditions are also dampening nonresidential construction. Reports of materials shortages continue to crop up but rather less frequently than in earlier surveys. A large majority of survey respondents report increases in employee compensation and in prices paid and received. In a special survey of a sample of large District banks, respondents in every state except North Carolina and Maryland report some easing of business loan demands.

The orders picture at District manufacturers appears considerably less robust than earlier in the year. In our latest survey, 20 of 48 manufacturing respondents report declines in new orders against only 8 reporting increases, and 21 indicate a reduction in backlogs against 6 reporting increases. New orders are apparently holding up well in electrical equipment and supplies and in primary metals but have slipped in most other major District industries and especially in textiles and furniture. The diffusion of manufacturing responses suggests some further recent accumulation of both materials and finished inventories, but it may be noteworthy that of the 48 respondents 16 evaluate their inventories as too high while 11 characterize them as too low. This is the first time in the last ten surveys that reports of excessive inventories outnumber reports of deficiencies. The diffusion of responses also suggests small reductions in both employment and hours worked in manufacturing.

A large majority of retailers in our survey report recent gains in the dollar volume of retail sales, but just as many report declines in sales of big ticket items as report increases. Also, the balance of responses suggests a decline in retail inventories and a reduction in employment. Some respondents cite recent wage increases and a tight labor market as factors holding down retail employment.

Construction continues in a sharp slump, with residential building reported as having declined substantially further in recent weeks. Reports of shortages of building materials persist, but high building costs and unusually high interest rates on construction loans of all kinds appear to be the chief factors in the slowdown. Prospective home buyers are reported to be unable to find mortgage financing or reluctant to borrow at prevailing mortgage rates. Nonbank intermediaries have cut back significantly on their mortgage lending, and, in only one state, are commercial banks reported to be supplying such funds in any quantity.

Large banks in the District indicate that they are applying firmer credit standards in reviewing loan requests, with new customers being subjected to particularly close scrutiny. Most bankers are apparently increasingly reluctant to make loans with long maturities and are shying away from business term loans and real estate loans. Most also continue to note a step-up in the activity of large national accounts, relating this to the increasing difficulty of financing in the commercial paper market. Nevertheless, the surveyed banks in every state except North Carolina and Maryland express the view that business loan demand may be easing from the recent feverish pace. Only the North Carolina banks entertain any firm expectation of continued increases in business loan demand.

Businessmen in our survey are apparently somewhat less optimistic about the six months' outlook for the national economy than they were a month ago. The number expecting national conditions to worsen increased moderately in the latest survey and now exceeds by a considerable margin the number expecting some improvement. But, interestingly, in evaluating the outlook for their respective industries, more expect improvement than declines. A large number of manufacturers continue to consider their current capacity too small relative to expected sales, and several feel that current expansion plans should be enlarged.