Continued inflation appears to be the major concern of the directors of this bank. Of the ten head office and branch directors surveyed (none of whom is a commercial banker), most expect a growing economy in 1971, characterized by a resurgence in consumer spending, a further downward movement of interest rates, and continued wage and price increases. With respect to the economy of each respondent director's local area, prospects were viewed as being only fair. Some major public construction projects are planned for 1971, and it is expected that these capital outlays will require tax increases in some localities. Retail sales are anticipated to remain sluggish, and few of the respondents are planning any increase in capital expenditures. Job opportunities are expected to rise only slightly as the year progresses. All foresee higher labor costs, but few expect to make changes in present levels of employment.

With respect to the national economy, a fairly optimistic outlook apparently holds. Most directors expect renewed economic growth, largely as a result of a rise in consumer spending and an increase in the Federal budget deficit. All but one of the respondents feel that interest rates will move down further through 1971. In addition, the gap between short-term and long-term rates is anticipated to narrow somewhat as long-term rates decline relative to short-term rates. However, most expect that inflation will continue to be a problem during the remainder of the year-in fact, much more so than unemployment. And, while some feel it would be wise to institute wage and price controls, none believes that this action will be taken.

The economic outlook for most local areas is somewhat less optimistic, the directors report. A few do expect growth in their cities' budgets, as some major public construction projects are planned. However, it was mentioned that increased taxes-particularly property taxes-are likely to accompany these additional governmental expenditures. Local consumer spending is not expected to provide much strength this year, with retail sales anticipated to be about the same as in 1970. Moreover, job opportunities may improve only slightly. All are expecting rising labor costs in 1971, with some anticipating an increase of more than 10 percent. And while few think they will have to release additional employees, none mentioned a need to add to employment in 1971.

Respondents indicated that capital expenditures are also likely to remain about unchanged from last year. In fact, only a few reported increases in capital expenditures last year even though dollar sales volume rose fairly substantially. Most of the increase in dollar sales was the result of inflation, as physical-unit sales either rose only slightly or declined. Moreover, few anticipated any major change in product composition. Thus, in most cases, present plant capacity is quite adequate. However, some indicated that they may face future changes in capital equipment in relation to new anti- pollution regulations.

On the whole, the district economy continues to remain fairly strong in comparison with the rest of the nation. Retail sales were up slightly in December, but consumer spending still remains subdued. Industrial production continues strong, reflecting mainly the high level of oil-activity in the District. Although oil allowables for February are down slightly, the longer-run outlook for production is bright as transportation problems caused by the shortage of world oil tankers continue to place demand on domestic sources. Unemployment in Texas rose substantially in December, but it is still significantly below the national average. In the agricultural sector of the District economy, there is some concern about the recent dry weather, which has forced supplemental feeding of livestock in some areas.