First District business conditions show no material change from last month, with the hoped-for stimulus from auto sales and other retail areas failing to materialize. The commercial banking sector continues to log excellent deposit flows, as do thrift institutions in most areas. Residential mortgage rates have fallen further, in some cases by large amounts. Our academic respondents seem a bit less pessimistic than in December.

Reports of strong consumer response to January sales constitute the one bright spot on the retail scene. This is entirely consistent with the pronounced consumer cost consciousness which has been reported since last fall. Auto dealers have felt the same phenomenon, with very high proportions of their sales activity concentrated in the compact and subcompact classes. Intermediate and luxury class auto sales have run well below expectations following the conclusion of the GM strike, and dealers seem split as to whether they are up against a generally poor year or merely feeling unusual seasonal effects.

To date, improving mortgage conditions seem to have provided impetus mainly to sales of existing homes. Further mortgage rate cuts seem likely, however, and mortgage lenders generally expect a strong surge in new home activity with the spring. Declining mortgage yields have already led several area thrift institutions to drop their 6 percent savings certificates, and more are expected to follow.

While noting his general satisfaction with the proposed Federal budget for fiscal year 1972, Professor Wallich expressed concern over the Administration's $1,065 billion GNP estimated for 1971. He suggested that it cannot be taken seriously and that, lest it be allowed to influence current policy, its origins within the CEA should be explored.

Professor Eckstein now reports an upward revision in the DRI forecast for 1971 to $1,047 billion. The adjustment was made largely on the basis of recent improvements in housing starts and retail sales, as well as continuing monetary ease and declining interest rate levels. The unemployment path commensurate with the $1,047 billion projection shows 5.9 percent for year-end 1971 and 5.4 percent at the close of 1972. Eckstein made a strong plea for continuing the current monetary stance, resisting any tendency to reduce the stimulus in response to recent signs of recovery and continuing signs of rapid inflation.

Professor Tobin expressed the view that the burden of achieving economic expansion over the next 18 months should properly fall on monetary, not fiscal policy. Accordingly, he feels that the System has for some time been overly cautious in its targets for credit market conditions and the aggregates. Tobin, Wallich and Eckstein all are expecting a reversal in the declining rate levels by mid-year as business credit demands turn round. Professor Samuelson was unavailable for comment this month.