Reports from economists, directors, and other businessmen suggest limited improvement in nonautomotive retail trade and a recent stimulus to new car sales. There are scattered signs of price declines among some industrial commodities and increased availability of raw materials. Demand for steel remains strong, partly because steel users are hedging against a coal strike. Coal business is booming, while output is being hampered by shortages. A number of electric utilities are shifting their capital spending from atomic power plants to coal and oil plants. S&Ls in the District continue to lose deposits in August.

Retail sales of a major department store chain in the northeast Ohio area have improved recently, following a virtually flat to declining level of sales for several months. The president of that chain attributes the recent spurt to extensive sales promotions. Their inventories, which have been more than ample in recent months, are being brought into better balance. He expects that remaining excess stocks could be worked off over the next few months if the recent pickup were sustained. However, he felt that the unit sales would do well to hold even, at least in the near term.

An economist with another major retail chain reported that the physical volume of sales remains flat. Their inventories, which were considered excessive two months ago, have increased. The firm expects a decline in unit sales of one to two percent during the balance of the year.

Auto dealers in the Cleveland area are experiencing an increase in sales of 1974 models as a result of the recently publicized price increases on 1975 models. Supplies of full-sized and intermediate models have been drawn down, but stocks of small cars are said to be abundant. Dealer sentiment is that the typical new car buyer will be reluctant to purchase a 1975 model, primarily because of the price factor, but also because of uncertainties concerning the availability of unleaded fuel.

An economist for a major tire producer reported that recent declines in prices for natural rubber, cotton, and propane lead him to conclude that industrial price pressures will moderate, albeit gradually. According to this source, capital spending plans of his firm have not been scaled downward because of the cost or availability of borrowed capital. Inventory plans have not been deterred by interest rates and their inventories are now being held in check as a result of a more abundant supply of raw materials and declines in some commodity prices. Their short-term debt has "soared" in part reflecting financing of inventories, and they have relied heavily on commercial paper to satisfy working capital needs.

Sources in the steel industry say they are having difficulty in maintaining production due to shortages of raw materials and downtime for maintenance. Steel mills are also experiencing a critical shortage of freight cars. New orders for steel products have been highly erratic, and almost meaningless, because order books are filled so fast each time a new quarter is opened. One major firm mentioned that its order intake was dropping sharply and should be reflected in national figures. The drop in orders stems from an effort by the firm to return to more realistic delivery schedules, rather than any weakening in demand. Steel shipments are expected to decline about 10 percent in the second half; as a result, there may be some involuntary liquidation of inventories by steel users. The first real test of steel inventories, according to one economist, will come after the coal settlement. If there is a coal strike, severe cutbacks in steel output are expected within a week. One major steel firm has only a few days supply of low volatile coal needed to operate their coke ovens.

An economist with a large coal company commented "it would be prudent to factor in a two to three-week miners' strike in any economic forecast." Expansion of capacity and output in the coal industry is being hampered by environmental factors, long lead times on machinery, and shortages of construction crews, drilling equipment, and railroad cars.

A director who is a supplier to a major electrical equipment company said the firm has a nine-year backlog of turbines and generators. The firm does not plan to expand capacity, however, because they fear that the orders may be canceled. The same director noted that many businessmen are expecting wage-price controls and therefore are retrenching on their capital spending. Another director with a utility expressed deep concern that "utilities are in a liquidity crisis, which may provoke an energy crisis." According to this director, electric utilities are canceling atomic plants because of their high capital costs, and substituting less capital intensive coal and oil plants. The irony is that atomic plants have fixed fuel costs, while coal and oil plants have rising fuel costs—so the shift away from atomic plants is inflationary in the long run. A second director confirmed this, noting that both atomic and fossil plants have been canceled because of the high cost of financing and load demand running below expectations. A number of these facilities were slated for completion after 1980. In addition, because of rising construction costs, there is a rush to complete those plants currently under construction.

A Federal Home Loan Bank official reported that, on the basis of the preliminary sample of 35 reporting associations, savings flows in August deteriorated further, especially in the second ten days of the month. He remarked, however, that the situation does not appear to be as bad as August 1973 when wild card certificates were introduced.

Some bank economists in the Cleveland area described their net deposits in August as exceeding the year ago volume, despite some runoff at the time of the Treasury note offering. One expressed concern that the Fed might well be overstaying restraint and that continued restraint will result in a recession. Another stated that although there is danger that the Fed will be restrictive too long he did not feel that the tine had come for a change in policy. Both of these economists expressed concern that Merrill Lynch's offering will cause another runoff on savings deposits and hinder their ability to issue CDs since that firm advertises that the CDs are insured by the FDIC.