The prevailing mood among Ninth District directors is one of moderate pessimism. There is no longer talk of a strong economy in the second half of 1974. Instead, directors foresee high rates of inflation coupled with modest rates of real growth continuing at least into the first quarter of 1975. Directors generally feel that traditional fiscal and monetary policies provide the best way to bring inflation under control. They are opposed to the reimposition of wage and price controls.

Some directors believe that a depressed housing industry and possible cutbacks in planned outlays on plant and equipment will hold down the rate of increase in gross private domestic investment in the second half. Consumer spending should pick up if workers register real income gains, but the increased spending may not lend much buoyancy to the economy.

Directors feel that high prices for farm crops may help insulate the District economy from national fluctuations in income and employment. But one director cautioned that this insulating effect may be less than perfect since low cattle prices have already resulted in reduced spending by some of the District's ranchers and farmers.

Crops in the Ninth District are in fairly good condition, the main exception being large portions of South Dakota, where drought conditions have cut yields far below normal. Crops in Minnesota are good but will be late in maturing, raising the possibility that an early frost could do major damage. Provided that weather conditions are favorable through the fall months, many District farmers should do well, since farm prices are expected to remain at very favorable levels.

There is less hope for the livestock producer, however. According to one director, the market for feeder cattle is bleak. The contract buying of feeder cattle has been the slowest in years. Many producers will either be holding their animals over until spring or will be forced to sell their animals at auction.

Some directors indicate that consumer spending in the District has held up fairly well into the third quarter of 1974. In current dollars the gains over 1973 are sizable. For example, respondents to our August Industrial Expectations Survey reported that second-quarter sales were up 26 percent from a year ago; sales gains of 20.5 and 17.6 percent are expected in the third and fourth quarters. In real dollars, the advances were substantially lower.

Capital spending had been expected to bolster the second-half economy, but directors now feel that capital expenditures may fall short of earlier expectations. There have apparently been some cutbacks in planned expenditures on machinery and equipment, especially in those farming areas where uncertain crop prospects and low livestock prices have had a depressing effect on spending.

Inventories in the District have been increasing, and at least one director feels that the rate of inventory accumulation has been excessive. Another predicts that the rate of accumulation will fall off sharply by the end of 1974. On the other hand, according to the Industrial Expectations Survey, many firms still feel that their inventories are less than adequate.

Two directors expressed concern over the current financial problems of utilities. Capital flows have dried up at the very time that utilities are being called upon to expand capacity and to provide environmental safeguards to their operations. Investment credits and loan guarantees are being considered as possible ways to increase the flow of capital.

Ninth District directors see inflation as a primary concern, and they generally feel that traditional fiscal and monetary policies offer the best hope of bringing inflation under control. Directors are opposed to the use of wage and price controls, at least under current conditions. They have mixed views about jawboning. Some view it as an imprecise and ineffective economic weapon; others say it has favorable psychological effects; and yet another feels that jawboning can be effective in curbing monopolistic elements in the economy. A savings incentive program was proposed by one director as a policy alternative to complement fiscal and monetary policy.

Several directors feel that a limited public works program may be needed to aid unemployed workers in coming months; other directors believe that there are more efficient ways to assist the unemployed. For instance, one director suggested that income supplements might be a more desirable approach.

Many directors also stressed the importance of curbing expectations in helping to stop inflation. One director said that rates of inflation in the second half and in early 1975 will depend on whether effective economic leadership is exerted at the national level; a failure to exert such leadership, he said, may result in a worsening of inflation.