There are signs of some slowing in the pace of District manufacturing activity, an easing in supply conditions for many items, and a moderate reduction in the pervasiveness of industrial price increases. Machine tool orders remain strong, although below the peak reached earlier this year. The domestic steel market continues to be tight, but world steel demand is easing. Banks report strong loan demand and increasingly stringent loan policies. S&Ls generally continued to lose deposits in September and early October; few mortgage loans are being made.

Early returns from our monthly survey of manufacturers indicate some weakening in new orders and backlogs during September. Production apparently continued to rise moderately, while inventory accumulation remained large. Firms note an easing in delivery schedules and in labor utilization. Inflationary pressures continue to be extremely pervasive, although the proportion of firms paying higher prices has declined slightly in recent months from the peak levels reached in the spring and early summer. Recent reports of purchasing agents in the Cleveland area mention signs of price resistance on the part of industrial buyers and a gradual slowing in the percent of companies paying higher prices.

Among the industries showing current weakness are building materials firms and consumer goods producers. Several major glass producers have cut output and employment. Two large appliance firms in the District are laying off workers as a result of sluggish sales. A major tire firm reports excessive inventories of tires. Unless new car sales strengthen, it is likely that output and employment will be cut later in the year. (Auto dealers in northern Ohio say 1975 new car sales are off to a slow start with consumers interested mainly in the 1974 models.)

Executives from three large machine tool firms in the Ohio area say that new orders are still strong, although somewhat below the peak levels reached last March and April. Ordering by heavy equipment producers, especially mining and earthmoving machinery, continues to be high. Machinery firms report the high cost of money is affecting the ability to increase production. Shipments can be increased, builders complain, only by borrowing money at interest rates around 15% to build component inventories.

Steel industry sources report no slackening to date in the demand for U.S. steel. Order books are solid through 1974. The tight steel market has caused customers to be less demanding with regard to quality; and with less steel rejected at the mills, finished steel output has been running at a higher percentage of capacity. The tight market also has forced steel customers to carry their own inventories rather than have the mills hold them. Contrary to the domestic situation, steel industry economists report an easing in world steel demand and a recent surge in steel imports. Expectations are that foreign steel prices (now at a premium) will drop next year to whatever level is necessary to sell steel in the U.S. One economist predicts an end to domestic steel shortages in the second quarter of 1975.

Steel mills continue to be hampered by shortages of coking coal. Two major steel firms both said that in the event of a coal miners' strike they would begin cutting production immediately unless the government gives indications of ordering the miners back to work. An executive with a large coal company confirmed reports that a coal strike would have immediate repercussions on steel output. Utilities have almost normal inventories of coal-between two and three months supply. The spokesman estimated that the utilities could withstand a four-week coal strike.

In the financial area, bankers report that tighter loan policies are being applied to all types of borrowers, and few new customers are being accepted. Utilities are borrowing to the maximum of their credit lines and are expected to continue so until other markets improve. REITs are said to have all they are going to get. Banks notice weakness in loan demand from housing-related customers such as furniture and appliance dealers. Strong credit demand from manufacturers is anticipated during the current quarter.

Spot checks with S&Ls in the Cleveland area generally reveal sizable losses in deposits during late September and early October. One of the area's largest S&Ls; however, has been a net gainer in deposits thus far in October, following extremely heavy losses in September. The recent improvement was attributed to a heavy promotional campaign to attract deposits. Other S&L executives do not expect an improvement in their deposit flows until the yield on T-bills falls below 7 percent. They are prepared for a massive advertising campaign when rates are at or below that figure. Presidents of four local S&Ls all remarked that demand for mortgage loans is still high, despite lending rates in the 10 to 11 percent range (with a third down). No one is encouraging loans, and loans are made selectively only on the basis of past customer relationship of a high recommendation.