Economic activity in the Third District continues to move along at a slow pace. Production activity is about at the same level in July as it was in June, and manufacturers anticipate little change in this trend in the coming six months. Employment, too, remains stable. This slow-paced business activity is reflected in a general leveling in inventories, and in conservative plans for boosting investment in new plant and equipment. Normally strong retail sales were off in June, and the somber outlook for retail prices (as well as manufacturing prices) could also mean soft sales in the fall. Although area banks have been the subject of some adverse publicity, loan levels remain firm and deposit levels are up somewhat. Area savings banks appear equipped to withstand their current disintermediation problems.

According to this month's business outlook survey of manufacturers in the Third District, industrial activity is continuing to move along at a sluggish pace. Almost 60 percent of the executives polled report no change in new orders, shipments and unfilled orders in July, and regional manufacturers expect this trend to last into January. Twenty percent more of the respondents expect an increase in these key indicators than expect a decrease, with the remainder anticipating no change at all through the end of the year.

Despite this lack of growth in business activity, manufacturers continue to report little change in employment opportunities. The number of executives reporting an increase in the number of their employees and the length of their average workweek in July just about equals the number reporting a decrease. Respondents expect this trend to continue into the six months ahead. However, little change in the number of jobs available in the area will likely mean higher unemployment in the region as the work force continues to grow.

Ten percent more executives decreased their inventory stocks this month than increased them. However, just about as many respondents expect to add to their stocks by January as expect to cut them, which implies a general leveling in inventory stocks in the next six months. In addition to inventories, manufacturers may well be taking a closer look at plant and equipment investment plans. The outlook for increased investment in capital goods is lower than it has been in several months, and almost half of the responding manufacturers expect to maintain current spending plans through January.

The value of nonresidential construction contracts in the Third District is up 30 percent over this same period last year and up 5 percent for the year to date. However, residential contracts are down 9 percent from last year's levels and 28 percent for the year to date. Higher prices and interest rates, plus some shortages, are having an impact in the residential market. Public works construction is moving at a rapid pace. The value of public works construction contracts in the region is up a total of 186 percent for the year to date.

A cool, wet June damaged sales at area department stores. Consumers were not interested in the traditional summer purchases of air conditioners, light clothing, and barbecuing accessories. However, the quick settlement of the newspaper delivery strike and hot weather so far in July have combined to make retailers more bullish in their outlook. Traditional season-end sales also play a major role in their expectations for higher sales figures this month. Area manufacturers are still uncertain about the impact of higher prices on fall and winter sales. Most department store items will display higher price tags in the months ahead, but clothing, and particularly men's wear, will post larger increases than most other goods.

The outlook for prices in manufacturing also remains bearish. Over 85 percent of the executives polled expect to pay higher prices for raw materials through January and over 78 percent expect to receive higher prices for finished goods.

Several Philadelphia banks were plagued with adverse publicity in recent weeks as rumors abounded and their stocks declined. However, the rumors were mostly unfounded. Most banks report an ability to roll over their CD's although one bank did have minor difficulties with some especially large maturities last week. A large Philadelphia bank also had $5 million on deposit at the defunct Herstatt Bank. However, the bank now has expectations of getting approximately 75 percent of that sum returned. Loan levels are about the same as last month, primarily because of restrictive loan policies at area banks. Although deposits are up somewhat over last month's levels, borrowing at the discount window by a few regional banks is reported heavy. Savings banks see no liquidity problems at this time despite deposit outflows. A survey of savings banks found most of them able to withstand substantial outflows of funds without incurring severe liquidity problems.