Business activity is accelerating in the Third District. Although expectations about future expansion in the economy are in a state of fragile optimism, retailers report that January was a good month, and they are hopeful about February. Manufacturers report improved business in January as well, and they too are cautiously optimistic about the coming months. Industrialists believe that more liberal depreciation allowances will give plant and equipment spending a boost. But, for the near term at least, business will hold the line on hiring. Loan demand at banks continues weak; also bankers remain concerned about the quality of loans in their portfolios.

Philadelphia department stores report that the good Christmas performance continued through January. Sales remain above last year even after adjusting for price increases. Demand is mixed across merchandising lines, however, "where customers see good values, they're buying," as one retailer put it. Sales clearance items such as women's coats, pant suits, and men's shirts, suits, and accessories are moving well; whereas furniture and other big ticket items remain weak. The test of consumer strength will come in February, one large retailer says. His reasoning is that post-holiday sales will be over and the new spring merchandise will be on display. If the newly stocked goods sell well, there is room for optimism. In the meantime, area retailers are keeping a sharp eye on inventories and holding new orders to a minimum.

Manufacturing activity in the Third District is still distorted by the aftermath of the General Motors strike. New orders and sales were up substantially in January. Looking beyond the strike make-up period, however, area manufacturers are cautiously optimistic that a mild upward turn in the economy is in prospect.

All of the directors with industrial connections agree that the recent changes in depreciation allowances will stimulate business investment, particularly for new equipment. One director with wide contacts in the industrial world says there is confusion about when the new depreciation rule will go into effect. The upcoming Treasury hearing of the new changes is causing some uncertainty, he says. But once the confusion is gone and the rule change becomes firm, he believes that investment outlays will be stimulated beginning about six months later.

Although the area business community is mildly optimistic about an economic pickup, they plan to hold the line on the number of employees at least for the near term. By mid-year, however, about one-third of the manufacturers we contacted indicated that some hiring may be taking place.

Several directors used the word "sober" to describe the general mood of people in their respective area. Rising unemployment and prices are making consumers cautious, say these directors. One director says that unless this sober psychology is altered, he does not believe that the pickup in the economy will be substantial.

At banks, loan demand remains flat. Also there continues to be a big concern about the quality of loans. Bankers report that they are going out of the savings certificate business. One country banker, for example, says that his bank no longer issues 5 1/2 or 5 3/4 percent certificates. He says he has not faced the renewal problem yet because these certificates have not started maturing. He is not sure yet how he will handle renewals when they arise.