In the views of the Second District directors and other business leaders who were contacted recently, while many firms are critically reexamining their capital spending plans, few are cutting back such plans, with. the notable exception of utilities. The majority of the respondents similarly felt that no major attempts to reduce inventories had got underway as yet. At the same time, however, the comments of several respondents indicated that somewhat more cautious inventory policies might be emerging. Some observers expected the 1974 model automobiles to sell out quickly but expressed apprehensions about the outlook for demand for the 1975 models. Views were mixed regarding the prospective strength of business loan demand, but there was general agreement that bank lending policies had become tighter.

Regarding business plant and equipment outlays, the Buffalo branch directors felt that despite currently tight conditions in the financial market, most corporations were going forward with their capital spending plans, prompted by shortages in productive capacity and by the need to improve productivity. Among other respondents, a senior official of a New York City securities firm reported that except for utilities and some other scattered instances, he could not discern cutbacks in corporations' longer term capital investment plans, a view that was expressed by several other respondents. And while a New Jersey banker felt that a continued high level of interest rates might eventually lead to some retrenchment in business capital outlays, he had seen little of that so far in his area.

Similarly, most of the respondents had observed no major efforts as yet to reduce inventories. The official of the securities firm stated that notwithstanding the high level of interest rates, the current rate of inflation still made it profitable to accumulate inventories. Several respondents attributed the high level of inventories to the rapid inflation and the frequently long delivery lead-times which encouraged businessmen to increase stocks on hand, both as a hedge against further price increases and as protection against shortages. On the other hand, a senior official of a nationwide department store chain attributed the recent buildup in that firm's stocks to a shortening of some suppliers' delivery lead-times. A senior economist at a large New York City bank reported that whereas until recently the bank's corporate clients had been using credit to "invest" in inventories, the rise in interest rates combined with the fact that the prices of many commodities were no longer rising as rapidly as previously had made the carrying of excessive inventories "too costly", and that this had been reflected in some slowdown in the rate of accumulation. Similarly, a senior official of a large upstate New York firm stated that in view of the rise in interest rates and the decline in price of some commodities, carrying excess inventories had become "risky".

Regarding consumer spending, the department store chain official reported that his firm's sales had been better than expected during the first half of the year. He expected a good second half, although the rate of increase would probably be slower. An upstate retailer expected an increase in dollar sales over last year's level but somewhat lower physical volume. Another director saw the retail sales picture as being fairly flat. The New Jersey banker expected that retail sales-particularly of automobiles and other big-ticket items-would be adversely affected by inflation. In this connection, an upstate banker reported a sharp reduction at his bank in consumer loans for appliance purchases, although demand for home improvement loans remains heavy. Several respondents felt the short-run outlook for automobile sales was better today than a few months ago and expected a rather quick sell-out of remaining 1974 models. They did note, however, that the long-term outlook for auto sales was clouded by concern over public acceptance of 1975 models equipped with largely unproven catalytic converters and by the uncertainties regarding the availability of the lead-free gasoline, required to fuel models equipped with
such anti-pollution devices.

With respect to the demand for business loans, the New Jersey banker, the securities concern official, and several other respondents saw no let-up at this time. On the other hand, several upstate bankers felt that such demand had probably peaked, at least for the balance of the year, in part, as a result of sluggish economic conditions. Similarly, a senior economist at a major New York City bank reported that business loan demand at his bank, while still high, was tapering off.

The respondents in general reported a tightening in banks' lending policies. Among others, the New Jersey banker stated that his bank had adopted a "hard nosed" lending policy. It was making no new commitments and extending only modest amounts to regular customers. Similarly, the New York bank economist reported that his firm had not taken on new corporate customers for some time and was discouraging its regular customers from borrowing for non-productive purposes such as accumulation of excess inventories and the acquisition of other firms.