Comments on economic conditions in the twelve Federal Reserve Districts indicate that in most Districts bankers and businessmen find economic activity has been weakening, and they generally expected the decline will continue. In virtually all Districts, unemployment is rising, and in many, labor markets are easing noticeably. Retail trade is weaker almost everywhere, and consumers are "downgrading" and
bargain-hunting. A few Districts report large cuts in capital spending. In a number of Districts, special note was made of the profit squeeze that is affecting many businesses, and in some, concern was expressed about a decline in corporate liquidity. Mention was again made in several Districts of the dangers from wage and price developments, and in four Districts a substantial number of respondents reportedly favor some sort of incomes policy.

In only one Federal Reserve District, St. Louis, was recent economic activity regarded as "good"; and in Kansas City it was deemed fair to good. In most Districts, activity has weakened significantly, and a decline in new orders was noted in three Districts. Expectations of a further decline are widespread. These range, however, from the belief that the bottom will come in the third or fourth quarter of this year, to the belief of the directors of the Cleveland Federal Reserve Bank that the contraction will be "more prolonged and deeper than most economists and public policy makers are currently expecting".

A growth in unemployment is noticeable throughout the country, in some Districts only mildly, but in others strongly. Until recently, many firms were reducing their work forces simply by letting "attrition" take its toll, but now firms are "furloughing" workers, "cutting back" their staffs, and "pushing" early retirements. In a. few Districts, even "quality" labor has begun to be available. An easier market is noted for, among others, "middle management" and "professional" types and one District remarked upon an "extremely sharp increase" in unsolicited summaries from applicants with "extensive experience".

Very few exceptions were noted to the general pattern of weakness in retail sales and of "downgrading" and bargain hunting. Department stores seemed to be particularly hard hit by the softening of demand, while discount stores and "bargain basements" were holding up well. Weakness was particularly strong in furniture, appliances, television sets, and clothing. Auto buying was an area where "downgrading" was especially intense—except in Dallas. The trend was heavily to cheaper models, stripped-down models, "compacts", low-priced imports, and late-model used cars. Outside the auto field, in the few Districts where no "downgrading" was apparent, consumers nevertheless had a sharp eye out for "sales" and "specials". In the San Francisco District, a "strong" demand for mobile homes was interpreted as possibly a form of "downgrading".

In two Districts, Richmond and St. Louis, capital spending plans continue strong, out of "fear" of inflation or to offset increased labor costs. However, in the five other Districts that made reference to the subject, many firms are making substantial cutbacks. Among the comments: General Motors is making "huge" cutbacks, a "large retail organization" is cutting back by 50 percent, a "large oil company" is "continuously" reviewing its plans, in the Philadelphia District there has been a "marked" cutback since April, and in the New York District some firms are reviewing their plans for the "second or third time this year".

Inventory holdings were specifically mentioned by half of the Districts. They were regarded as "excessive" in two of the Districts, and were being "reduced" in a third. In two others they were at a "satisfactory" level, partly because firms were working on a "hand-to-mouth" basis. In another District, reference was to merchandising firms, which were being "extremely cautious" regarding their fall and winter stocks.

The profit squeeze is hitting many businesses very hard in many parts of the country. The situation is aggravated by a liquidity squeeze. Slow payment on accounts receivable was mentioned by both Chicago and New York as one of the reasons for this latter development. Because of their uncomfortable situation, many business firms have embarked on cost-cutting programs (including the reduction of staffs, of inventories, of advertising, and of capital spending). In the New York District, it was reported that many companies may not be able to "meet their maturities" and that some "substantial" companies would be unable to "meet their payrolls without refinancing". The liquidity squeeze is having repercussions in the commercial paper market. Some commercial paper dealers have told corporate customers they can no longer handle their issues. Among financial concerns that are troubled by their own liquidity situation are some life insurance companies. The latter were reported as wishing to increase their liquidity and therefore not seeking any new long-term investment outlets.

Concern about continuing inflationary pressures, particularly arising from large wage hikes, was mentioned in several Districts, although some price declines were noted in Cleveland (machine tool and aluminum industries) and in Richmond (textiles and furniture). Respondents in some Districts expressed disillusionment with "conventional" stabilization measures or with the "Administration's economic policies", and a few Districts reported there was considerable sentiment in favor of some kind of incomes policy. In one District it was reported that some labor leaders noted confidentially that guidelines would provide them with
"an excuse to argue for lower wage settlements" than their members are currently ready to consider.