Although it may now be less appropriate than earlier this year to characterize the U.S. economy as one of general materials scarcity, reports from the Reserve Banks continue to emphasize this problem. A fair generalization may be that shortages of materials and components are still generally severe, although the availability of some items seems to be easing. Cleveland and Chicago both emphasize the tightness of supplies, and the spotty nature of the improvements. In the Richmond and Kansas City Districts, some materials are now more easily obtainable but only at much higher prices. The New York Bank reports no lessening of pressure on productive capacity. Its respondents expect some further moderation in basic commodity prices, but continued upward pressure on finished goods prices.

The situation in the steel industry, as reported by the Chicago and Cleveland Banks, is of special interest. A shortage of steel is expected to be a major barrier to output increases in other industries, as demand for steel continues to exceed supply. (1974 shipments are now expected to be below the 1973 total.) According to the Chicago Bank, "shipments have been maintained at recent high rates by further reducing mill inventories below levels thought to be rock bottom." The situation could tighten further because of equipment bottlenecks, and shortages of ore and coal. Demand for coal, from utilities as well as steel companies, is strong their stocks are low; and the overall supply situation is tight. Steel company officials are concerned about the possibility of a coal strike in November, which would severely disrupt operations. (An economist with a coal-producing firm considers it likely that there will be a coal strike in November of from 2 to 4 weeks duration.) Several Banks—including Chicago, Atlanta, and San Francisco—report increasing numbers of labor disputes and more strike activity. Construction in the Chicago District has been severely hampered by a strike of ready-mix-concrete truck drivers. Interwoven with the increasing amount of strike activity is the increasing number of large wage demands (and settlements), making the intensifying wage-push pressure on prices a matter of great concern.

Capital spending remains generally, though not uniformly, strong. Chicago reports that demand for capital goods is well above output capabilities, and backlogs are rising in spite of all-out production; Cleveland also reports rising backlogs. Plant and equipment spending is behind schedule in the Atlanta District, but only because of capital goods delivery problems; capital spending plans remain strong across the District. In the Philadelphia District, however, manufacturers are taking a closer look at their plant and equipment spending plans and the outlook now is for a smaller increase in capital spending. Dallas, on the other hand, reports no significant revision of spending plans by large firms in its District. However, small businesses there are holding back on long-term expenditures because of the difficulty of getting bank financing and because of the high cost of funds.

Both Chicago and Richmond report that some major electrical utilities are scaling down their expansion plans. Chicago states that financing problems are to a large extent responsible for the cancellation of some projects, and Richmond notes the announcement of cutbacks, postponements, and review of plans by several electrical utilities in its District.

Eight of the twelve Banks refer in this Red Book to the continuing serious plight of the residential construction industry. The Chicago report is most blunt: "Housing is in a severe recession, with hopes dashed for a revival in 1974." The story is much the same for the Districts commenting: building permits off drastically; savings inflows to, and mortgage lending by, thrift institutions, very weak; construction sluggish and no recovery in sight. Indirect effects are also mentioned. San Francisco notes that the lumber and plywood industry is "marking time", waiting for a pickup in housing. Richmond reports that the sustained decline in residential construction has meant a 20 percent reduction this year in orders to the furniture industry.

Only Minneapolis, St. Louis, and Atlanta report some improvement in retail sales, or consumer spending in general. Cleveland and Philadelphia refer to weak or sluggish consumer spending, as does Richmond for big-ticket items. Several Banks report that retail inventories are considered excessive by their respondents. Views of a number of retailers range from uncertain to pessimistic for sales during the rest of the year. Tourist business has been "lackluster" in New England and slow in the Mountain states of the Kansas City District, but tourism is on the upswing all across the Atlanta District and the industry's outlook for the rest of the summer is good in the Minneapolis District.

Loan expansion by commercial banks continues to be limited by tight credit conditions, with deposit growth slowing down. Philadelphia reports loan demand as firm, held down primarily by restrictive loan policies rather than by adverse publicity. Business loan demand is characterized as strong by Atlanta, and by Minneapolis, where no let-up is foreseen. Richmond and Cleveland also report strong demand for business credit, with their banks becoming increasingly selective in allocating scarce funds. Kansas City and St. Louis detect some weakening in the rate of growth of demand for commercial loans. "Lackluster growth" summarizes the comments on recent deposits behavior, by Philadelphia, Atlanta, Kansas City, St. Louis, Minneapolis, and Richmond.

Boston's Eckstein and Samuelson warn of the dangers of overly tight money. New York respondents worry that the country is nearing serious trouble as the strains on liquidity increase. In Atlanta, apprehensive businessmen are reacting to the rumors of little liquidity in banks, while nonbank respondents for San Francisco call commercial banks "dangerously illiquid." Meanwhile, most Philadelphia banks have been able to roll over their CD's without major difficulties.

Concern with the agricultural price situation is recorded by several Districts. Richmond and Atlanta report that poultry and cattle producers are caught in a severe cost-price squeeze. Kansas City, Dallas, and San Francisco comment further on the troubled cattle industry. Minneapolis and Kansas City explain the recent turnaround of grain prices as being partly due to the uncertain effects of unfavorable spring weather on the corn and soybean crops. Offsetting the bad farm news, San Francisco points to the high price for sugar beets, and Kansas City reports a good wheat harvest in progress.