Business conditions in the Third Federal Reserve District are showing conflicting signals, picking up a bit in the manufacturing sector and weakening in the retail sector. During the last few weeks new orders and shipments at local manufacturers have shown some strength, and the outlook for early 1975 is also positive. At present, there is no forecast of any significant downturn in manufacturing employment. However, area retailers report that inflated prices are taking a heavy toll in the sales of nearly all lines of merchandise. No relief from inflation is expected by any of the merchants or manufacturers surveyed. The banking community reports that its business is relatively stable compared to the uncertain conditions of the spring and early summer. Loan demand remains strong, and access to the national money markets is adequate to meet current needs.

According to executives surveyed for the business outlook survey of manufacturers in the Third Federal Reserve District, economic activity showed a slight improvement in August. New orders, shipments, and unfilled orders were all above their levels of the previous month. Inventory stocks were lower, but employment was steady.

In addition, more than half of the businessmen polled anticipate some improvement in general business conditions by early 1975. Even though inventories may decline, new orders are expected to rise. However, this bullishness does not extend into the capital spending area. The weakness that has been developing in this sector for several months is still evident. Only one quarter of the firms surveyed plan to increase their spending on capital goods in the next 6 months. At the same time, employment in the region's manufacturing sector may be stronger than most economic forecasters are currently predicting. The 6-month outlook reported by area businessmen is for stable employment with just as many firms planning to add new workers as to reduce their work force. Retailers in the Third District are feeling a significant sales pinch. There are reports of widespread resistance to price increases on the new fall line of soft goods. Sales of case goods are still strong, but higher dollar sales totals are attributed to rising prices rather than greater volume. Store management expressed the opinion that buyers are no longer willing to reduce their savings to maintain their standard of living.

Consumers have also avoided any increase in the proportion of purchases made on credit, even though the real cost of revolving charge account credit has declined. Major price promotions are being planned for the fall in an effort to boost sales volume. The region's banking sector reports general stability in its operations. Loan demand is still high, but the bankers surveyed report that they are trying to restrict the expansion of their loan portfolios. They are also restructuring their asset holdings by moving out of "impersonal" investments and low-yielding credits such as real estate and consumer loans (public disclaimers to the contrary notwithstanding). The banks suffered some deposit losses when the Treasury and the floating rate capital note issues reached the market, but the outflow was not severe. The bankers also report that they have been able to meet their needs for the new money in the liabilities markets even though rumors occasionally hamper these operations. Finally, the inflation picture continues to be grim. Nearly two-thirds of the manufacturers surveyed experienced increases in the prices they paid for goods during the last month, and over half of them increased some of their own prices. The outlook for early 1975 is overwhelmingly for still higher prices. The only ray of hope is a very modest increase in the proportion of survey respondents who claim that they will be able to hold the line on prices for the foreseeable future. These executives are still a small minority, but any growth in their numbers is an encouraging sign.