Many of the labor contracts settled in the Eleventh District, since the end of the wage-price controls on April 30, are reported to have granted the biggest wage hikes in the history of collective bargaining in the Southwest. A survey of new multiyear contracts indicates that the first-year increases in wages and fringe benefits range from 7 to 12 percent, with most averaging about 10 percent. Increases during the remaining years of the contracts run about a third less. In addition, the typical contract includes cost-of-living adjustments that provide a one percent increase in the hourly wage rate for each 0.3 point rise in the consumer price index (CPI)—with adjustments made quarterly. For example, the 4-point rise in the CPI during the second quarter of 1974 would have boosted hourly wage rates under these contracts by 13 cents. The settlements apparently reflect organized labor's insistent demand that real wages be protected during periods when prices are subject to sharp and persistent advances. A key point in the negotiation of these agreements is reported to be labor's position that wages not be subject to downward adjustment in the event that living costs should decline.

In contrast to the new union contracts, salary increases for white-collar workers typically include a one-time cost-of-living adjustment of 5 to 7 percent and merit raises averaging 6 percent. Most respondents doubt that the income of salaried workers will keep pace with the rise in wages of their blue-collar counterparts—especially if the CPI continues to climb at a rate in excess of 10 percent.

Despite the record wage settlements, there have been some favorable contractual developments for Southwestern businesses. For example, it has not been necessary to renegotiate any existing contracts containing emergency reopening provisions. And a new wage settlement was signed by a Texas steel manufacturer three months before the existing contract was due to expire. An executive of the firm attributed the prompt settlement in part to be the "Experimental Negotiating Agreement" signed last year, which contains provisions promising to pay workers a $150 cash bonus if they do not strike.

Commercial loan officers at large banks in the District report that they are discouraging borrowing that "is not absolutely necessary" in response to the reduced availability of funds. In general, only loans to regular customers are being considered, and even these are kept to short term. High interest rates are driving many businesses to seek interim-term bank loans rather than financing through long-term debt or equity issues. Businessmen anticipate that these bank loans will be refunded in debt and equity markets when interest rates fall. However, one Dallas banker is concerned that these customers will not be able to roll over their loans for some time. Therefore, his bank is not making these loans.

Borrowing at banks to finance inventories remains strong, but most respondents expect the volume of these loans will level off as the rise in materials and other prices slows. In addition, bankers are encouraging customers to hold borrowing to the lowest level practical. Moreover, businessmen are reported to be returning to more prudent buying practices in accumulating their materials inventories, instead of engaging in "panic buying" and in stockpiling materials that are in short supply.

There have been reports in the financial media that many "country" banks are growing more reluctant to supply reserves to the Federal funds market. There is, however, no evidence that this practice is occurring to any significant extent in the Eleventh District. Sales of Federal funds to large District banks by correspondents and small country banks remain very high. Apparently, however, banks have become a little more selective and cautious with regard to whom they sell Federal funds. Interviews at several large banks in the District indicate that efforts are being undertaken to spread sales among more banks in order to reduce potential risk. While this cautious sentiment might result in a slight redistribution of funds, there has been no appreciable decrease in the District in the total volume of funds supplied to the Federal funds market.

New factory orders received by District manufacturers are generally running ahead of year-ago levels. Heavy demand is reported by producers of primary and fabricated metals, oil field drilling equipment, plastic products, and agricultural equipment. However, manufacturers of residential construction materials continued to experience sharply reduced sales, and petrochemical producers report a slight softening in new orders in the last month.

Most manufacturers are experiencing some relief from soaring prices of raw materials. A majority of the producers surveyed report the rise in materials prices has slowed in recent weeks. Moreover, prices of some items-including cotton, polyester, plywood, and carbon scrap-have actually declined. However, manufacturers of wood and plastic products have not experienced any letup in the skyrocketing costs of these materials.