February 7, 1973
According to bank directors' reports, some acceleration in price increases is anticipated as a result of the shift to voluntary compliance in Phase III. In general, District businesses have not experienced difficulties in hiring skilled labor. No immediate curtailment in District business activity is foreseen as a result of recently announced cutbacks in Federal programs. Due to temporary factors, the demand for short-term agricultural credit increased in the fourth quarter, and is expected to ease in early 1973.
The consensus among bank directors is that price increases under Phase III regulations will be somewhat greater than if the more restrictive Phase II rules had remained in force. A District manufacturer associated with the construction industry revealed that prices of inputs purchased by his firm have already risen since the imposition of Phase III. Furthermore, some unions negotiating with his firm have indicated a willingness to abide by the 5.5 percent wage guideline, while others plan to disregard it. Another director anticipates prices to rise, but so far his firm has not encountered any price increases. Unless the government effectively jawbones, in one director's view, Phase III will not hold down price increases.
Although isolated instances were cited, no widespread shortage of skilled labor exists in the District.
A Duluth banker indicated that some skilled labor was becoming difficult to hire in his area, and a Montana director disclosed that in his area building trade workers were in short supply. Another director stated that experienced workers were not available in his
area and employers were hiring younger and more
inexperienced workers. One director reported that his firm had not encountered any skilled labor shortages but noted delivery times of steel products had recently been extended.
The recently announced freeze on Federal subsidized housing and cutbacks in agricultural programs are not expected to have any immediate, pronounced impact on District economic activity. According to a telephone survey of District HUD officials, the freeze on subsidized housing should not affect District homebuilding in 1973, but could dampen residential construction in 1974 and 1975. Also, several directors reported the freeze on subsidized housing could curtail some future homebuilding in their areas. District farmers currently are enjoying a relatively high level of prosperity, so the cutback in farm programs is not expected to have any immediate serious impact on District agriculture. However, in a South Dakota director's opinion, the farm conservation programs have been quite successful and stopping these projects will be detrimental to his area. The termination of FDA programs announced in the President's 1974 budget, a Duluth banker indicated, could adversely affect northeastern Minnesota. In another director's view, the recently announced cutbacks in Federally supported construction projects could take the edge off many areas' expected expansion in business activity this year.
According to our latest agricultural credit conditions survey, fourth quarter demand for short-term agricultural credit at many District commercial banks advanced after declining earlier in the year. Part of this increase can be attributed to a dramatic increase in farmer spending in some areas, as farmers incurred expenses prior to January 1 in order to reduce 1972 income taxes. Also, District farmers strategically postponed marketings to defer income taxes until next year which delayed loan repayments. These developments, however, are considered temporary and short-term agricultural loan demands are expected to ease in early 1973. Fourth quarter demand for long-term agricultural credit was quite strong and may even strengthen further in the first quarter.