Economic activity in the Third District continues to advance at a sluggish pace. Manufacturing activity is posting little change, and manufacturers expect this trend to hold steady at least until February. Employment levels, too, remain stable. Inventory stocks are being held constant, with manufacturers reporting few plans to increase their existing levels in the next six months. Earlier optimistic plans for boosting spending on capital goods have been revised down again this month.

This slow-paced business activity is also showing up in some declines in retail sales. Both retailers' and manufacturers' expectations of higher prices in the months ahead could add fuel to the slowdown in business activity in the regional economy. Area banks experienced some disintermediation in early August, but no liquidity problems were reported. Loan levels, as well as deposit levels, are reported lower at most District banks.

Manufacturers in the Third District, responding to this month's business outlook survey, report that business activity in the Third District is continuing to move along at a slow pace. Seventy percent of the respondents report no change in new orders, shipments, and unfilled orders in August. The executives' six-month outlook reflects a continuation of this trend. Twelve percent more of the area manufacturers expect an increase in these key indicators than expect a decrease, with the remaining third anticipating no change at all by February.

Presently, the slowing in manufacturing activity is having very slight effects on employment in the District. Over 80 percent of the respondents report no change in their number of employees and the length of their average workweek.

The employment picture isn't expected to alter much in the next six months. Seven out of ten executives expect to maintain stable employment levels through February and to keep the length of the average workweek the same. Yet as the size of the work force continues to grow, we are likely to see some increase in the level of manufacturing unemployment in the region in the months ahead.

Manufacturers are showing some reluctance to increase their inventory stocks this month. Just as many decreased their stocks as increased them, and respondents report that they expect to maintain this posture at least until February. For the second month, manufacturers indicate reluctance to boost spending plans on plant and equipment. Fifty percent of the respondents report no change in capital expenditure plans, with the remaining 50 percent split evenly between those who expect to step up their spending on plant and equipment and those who expect to cut back. Area retailers report a slight slowing in sales in July despite widespread price reductions of season-end merchandise; however, those executives surveyed report optimism for August. But uncertainty still remains regarding consumer spending later in the fall and winter. Coats and men's suits will post the largest gains on price, but executives report higher price tags on most new merchandise. The outlook for prices in manufacturing also remains pessimistic. Seventy percent of the executives polled expect to pay higher prices for raw materials in February and to receive higher prices for finished goods. Not one manufacturer reported any expectations of price declines in the manufacturing sector of the regional economy.

Loan levels at regional banks dropped off in July and early August, primarily because of restrictive loan policies. Area banks are not soliciting new business, and some report cancellations of existing credit lines. Most banks surveyed report few difficulties in the money market although, in general, area banks must pay a premium for funds over that which New York banks pay. Disintermediation was a large problem last week for most commercial banks as well as area savings banks. Record outflows resulting from the latest Treasury issue, coupled with a drop in deposit levels, produced a substantial reduction in available funds. However, no severe liquidity problems were reported.