Reports from our directors and other business executives indicate a mixed picture of strengths and weaknesses. Inflation remains the main concern of many of our directors, and their reports indicated that prices will remain under upward pressure over the period ahead. There is little firm evidence as yet that the pace of economic activity in the District is slowing down significantly, although there are some limited indications of softening in capital spending plans among utilities. Supply conditions generally have eased, and this development coupled with higher interest cost is leading to a reappraisal of inventory situations. Demand for steel products remains intense. Industrial firms and utilities are trying desperately to stockpile coal. Conditions in the District's savings and loan industry continue to tighten.

Early returns from our monthly survey of manufacturers showed some weakening in new orders during July, following three consecutive months of recovery. Firms reported further moderate gains in shipments and inventories. Backlogs are still rising, and price increases remain pervasive.

One of our directors associated with a major retail firm emphasized that the physical volume of sales remains basically level. In addition, he was particularly pessimistic about the price outlook for the near term, noting that most of the foods in the retail pipeline carried considerably higher prices than goods currently on the shelf. Several other directors also gave pessimistic reports about the likely price structure for their products in the months ahead. A director, associated with a consumer products firm, noted specifically that the firm's price increases reflect only higher costs for raw materials and that the firm was absorbing other cost increases.

The supply situation for raw materials generally has eased in the past few months, although there are still numerous reports of shortages. Buying lead times for production materials have improved slightly since the end of price controls. Two of our directors-one with a large industrial firm and the other with a consumer goods producer-noted that increased availability of basic materials and high interest costs are causing a significant reassessment of inventory positions. Another director mentioned that lift trucks are being delivered faster and that paper companies in Ohio are now giving quick delivery. A chemical firm reported that certain petrochemical products remain in short supply, while a chemical-rubber firm stated that petroleum derivatives are now in ample supply. The same company reported its tire inventories are on the high side, but that it does not plan to cut production. Management is relying on a pickup in new car sales, especially fleet purchases, to reduce its inventories. An executive in the machinery industry remarked that some of their inventories are growing faster than desired because shortages of component parts have held up shipments.

Industrial firms and electric utilities in the District, which depend on coal more heavily than the national average, are increasingly concerned over the possibility of a miners' strike in November. Many firms are attempting to stockpile coal. The steel industry has only a two to three-week inventory of coal. The steel industry would have to start cutting back production immediately to protect its facilities in the event of a strike.

Steel demand remains strong as customers continue to stockpile steel products. An economist with a major steel firm said that the market situation could turn around fast if customers stop hoarding. Railroad wheels, rails, and plates are in particularly short supply. Companies are paying a premium of $100 a ton over domestic prices for imported steel.

Capital spending plans appear to be holding up, although there are some signs of softening. Purchasing agents in the Cleveland area continue to maintain long lead times for capital equipment. Economists with petrochemical, machinery, and steel companies say their spending plans for the remainder of this year have not been scaled down, despite the high cost of borrowing and a squeeze on cash flow in some firms. Steel mills are increasing their capacity for making hot steel and semifinished products. where the production bottlenecks are concentrated. Nonresidential building awards in the District remain strong, but there are indications of a softening in new orders for machine tools and some other types of industrial machinery. A director in the machine tool business believes his orders backlog is about to level off and then remain on a high plateau for about a year. Other directors expressed the opinion that industrial firms must be reexamining their capital spending plans. Several utilities in the District recently announced cutbacks in planned capital spending programs.

The District's savings and loan associations lost deposits throughout the month of July and during the first week of August. An official with a Federal Home Loan Bank described the situation as poor, but not exactly a disaster. Recent deposit outflows were greater in Cleveland and Cincinnati, and were related to the Treasury note offerings. Savings and loan associations are still making mortgage loans; all are at rates of 9 percent or higher-some are charging 10 percent.