Economic activity in the District appears to be weakening. New car sales are down sharply, and department store sales are softening. New orders are declining and layoffs increasing in the industrial sector. Residential construction continues to decline sharply. At the same time, the machine tool, mining equipment, general industrial machinery, and steel industries are still sources of considerable near-term strength.

New car dealers in the Greater Cleveland area report that sales in October declined 23 percent from the year-ago level. An official with one of Cleveland's large department stores said sales in the past few weeks have softened further. He attributes this in part to the considerable publicity given to inflation and recession. Sales of hard goods are especially weak; apparel sales, particularly winter clothing, have been below expectations. Inventories are on the high side, reflecting a rapid improvement in delivery and softening in sales.

Purchasing agents in the Cleveland area report a deterioration in business conditions during October, with declines in new orders and production. Lead times for production materials and supplies continue to improve. Purchasing agents report a moderation in the frequency and magnitude of price increases for the second consecutive month. Early returns from our monthly survey of District manufacturers indicate a sharp reduction in new orders during October, following some softening in September. Backlogs have started to decline, and inventory accumulation is showing signs of subsiding. Delivery times are becoming shorter. Employment and hours declined in October. In addition, a number of major firms plan to

cut employment in November; these include autos, appliances, building materials, aluminum, aerospace, and a few machinery companies.

Steel mills continue to operate at maximum capacity. A reduction in steel demand for appliances, housing, and commercial construction has been offset by other steel users. Auto producers generally are still buying heavily and are taking the maximum tonnage allotted to them. One major auto firm has reduced orders, but the amounts involved have not been significant. A steel industry economist says that automotive demand for steel has held up, despite production cutbacks, because of inventory hedging against a coal strike, which will curtail steel output. There are, however, a growing number of other steel customers who are deferring orders because of excessive inventories. Customer stocks are somewhat above normal, and the pressure for delivery is now less intense than it had been.

District coal mining operations have been at capacity because of heavy demands from all major users. Coal demand has been stimulated by prospects of a strike and by shortages of natural gas. (Several major natural gas companies in northern Ohio will be forced to curtail gas deliveries to industry this winter.)

Executives from machine tool companies in Ohio report continued strong demand from manufacturers of farm equipment, cans, coal mining machinery, and electrical generating and nuclear power equipment. Order cancellations are considered at normal levels. An economist with a major machine tool firm in Cleveland said the high level of backlogs in his firm indicates increases in production well into 1975. They are still experiencing production bottlenecks and having difficulties in increasing shipments.

Other areas of strength include casting companies and foundries, which are booking orders well into 1975 and even into 1976. A major producer of ore and coal mining equipment in Ohio says demand has exploded and their backlogs have surged. Delivery time for giant stripping shovels runs to 1980.

An executive with a major truck producer said their orders recently have dropped to a level about equal to capacity. (Orders had been roughly three times the volume of shipments.) Availability of most supplies they purchase is generally improving, but there are still shortages of commodities, such as castings, forgings, and some steel mill products that are delaying shipments of their trucks. The firm said there is still a need to build in-process inventories because of shortages.

Other firms have excessive stocks and say they are working toward bringing inventories back to normal. For example, one of the District's major tire producers reports it will take about three months of production cutbacks to bring excessive inventories to desired levels.

Contacts with several District firms indicate that recent events have not caused most manufacturers to alter their spending programs for 1975. Some firms acknowledge that spending plans are coming under increasing scrutiny and could be scaled down in the event of a deep recession. A major retail food chain headquartered in the District is cutting back significantly its capital spending plans for 1975. Within the past two weeks, another electric utility in the District announced it will cut its capital spending next year because the demand for electricity does not appear likely to grow as fast as previously expected. A large Cleveland-based consumer goods, automotive supplier, and electronics firm also recently announced a 10-percent cutback in spending plans for 1975.

Spot checks with three local savings and loan associations—one very small, one medium-sized, and the largest—showed that all three experienced net savings inflows during October. They are still being extremely selective in granting mortgage loans.