During October, both the current business climate and the six-month outlook for business in the Third Federal Reserve District declined from September's levels. Conditions in the manufacturing sector were substantially softer last month, as new orders sagged and prices rose. The outlook for the next six months is mixed, with businessmen giving the economy an even chance of picking up a bit by spring. Bank loans dropped very slightly during October, and retailing was weak. The labor market was also weaker, as manufacturing employment slid and the average workweek was trimmed.

A business outlook survey conducted among executives of major manufacturing firms in the District found area businessmen somewhat pessimistic about current business conditions. More than four out of ten of the respondents reported some deterioration in the overall business climate in which they operated. New order activity was below levels set in September, and backlogs dwindled. In general, business inventories, shipments, and delivery times were all steady. The labor requirements of these businesses were somewhat lower during the month. One quarter of the executives surveyed reported reductions in their firms' work force and average hours worked per week.

The six-month outlook in the manufacturing sector is less pessimistic, however. The results of the survey are mixed, but, in general, the number of businessmen anticipating an improvement in business conditions by April 1975 equals the number expecting further deterioration. These results are less optimistic than those of last month's survey, but they are more positive than the survey respondents' assessment of current business conditions. The outlook of these executives for new orders is much the same as it was last month, with the number expecting increases roughly equaling those expecting declines. Over the next half year, the firms canvassed anticipate a possibility of reduced employment but little likelihood, on average, that workweeks will be trimmed further.

Large commercial banks in this region report that their commercial and industrial loan commitments have declined very slightly in the last month. While a good bit of this result stems from very restrictive loan policies that are in effect throughout the industry, there are hints that demand is also starting to weaken. There has been some movement of major borrowers away from the banks and back to the commercial paper market. In part, this may stem from the slowness of several Philadelphia banks to drop their prime rates as fast as the industry leaders. The bankers questioned also reported that liabilities portfolios are being held to relatively short maturities until interest rates stop declining. The Third District's major retailing chains continue to experience softness in their sales. Warm weather has kept some shoppers out of the stores, but that is not the entire explanation. Many items which have had substantial price increases are being shunned. However, sales of major appliances and other big-ticket items have also slowed markedly, even though price increases on these goods have been less than the rate of increase in the Consumer Price Index during the last year. The one bright spot in their sales picture has been major price promotions—a device that has been quite successful for most of these stores.

Inflation is continuing unchecked. Recent sugar price boosts have received extensive media coverage in this region, but consumers aren't the only ones being pressured by higher prices. Sixty percent of the manufacturers surveyed report paying higher prices for their inputs last month, and 40 percent posted higher prices for their own products. Their outlook is equally pessimistic. Over 60 percent of these businessmen expect to be paying and receiving higher prices six months from now.