Results of our most recent survey of businessmen suggest some softening of recent strong demand pressures in the Fifth District. Reports from manufacturers indicate some easing in the pace of new orders and perhaps also of inventory accumulation. The retail sales diffusion index for the District suggests little change in sales, which is a substantial shift from the sizable and general increases recorded in previous surveys. Reports from retailers suggests that sales of
big-ticket items are less buoyant than was the case earlier in the year. Bankers continue to experience heavy demand for business and agricultural loans and, given the high cost of CD funds, many have begun to screen loan applications more carefully. Some banking respondents express serious concern over what they consider to be groundless rumors that banks will be unable to roll over their CD's.

The survey results from 56 manufacturers showed new orders down in 17, and up in only 6, which is a significantly worse diffusion than shown in earlier surveys this year. Until recently, manufacturers had been reporting that inventories were lower than desired. The recent survey, however, shows that although 15 respondents believed that inventories were too low, an equal number believed they were too high. In spite of an apparent softening in orders, an increasing number of respondents thought that their current plant and equipment capacity was too low. This suggests that they do not expect a continuation of whatever softening of demand may be occurring. This conclusion is also supported by the responses on production expectations. Twenty-one expect production to expand in the next few months, and only 6 respondents expect production to decline.

The easing of new orders appears to be concentrated in textiles, apparel, furniture, electrical equipment and supplies, and lumber and wood products. Sales of textile producers may have been adversely affected by the inability of textile converters to find financing. Primary and fabricated metals producers, however, appear to have burgeoning orders, as do food processors. Employment in manufacturing firms is reported unchanged from last month, and most firms continue to entertain buoyant expectations for future production.

Our retail sales survey indicates that sales may be leveling from their previously high rates of growth. Big-ticket items, especially, seem to be selling somewhat less well than they did in March or April. Sales expectations for the next six months, however, appear to have improved since last month's survey.

The agricultural outlook for the District remains generally optimistic, with most crops coming in on time or ahead of time. Some soft spots may be developing in livestock production, however, because of declining prices and high costs. Because of low market prices and high production costs, some North Carolina turkey producers are reported to be selling their breeder flocks and destroying eggs. While cash receipts of District farmers have been rising, the increase has lagged behind that for farmers in the nation as a whole.

District bankers continue to report heavy loan demands, with strength centered chiefly in business and agricultural loans. Fertilizer dealers and other farm suppliers are reported to be reluctant to extend trade credit to farmers and as a result farm credit is apparently being pushed increasingly into the banking system. Heavy inventory financing is reported as the principal factor behind business loan demand. Bankers attribute most of the recent increase in inventory borrowing to higher prices rather than to expanded stocks. Several large banks reported that they are no longer making real estate loans and are limiting consumer loan growth to what can be financed by increases in consumer time and savings deposits. Bankers generally show a reluctance to go to the CD market to raise funds at the current high rates and some indicate that they will accommodate only as much loan demand as can be financed through "regular" deposit growth. Most bank respondents appear to have tightened up their lending practices rather substantially. Consumer loan delinquencies, which have risen nationally, appear to pose no major problem in this District, according to most respondents. Several respondents were quite exercised over news stories of diminished public confidence in banks and mentioned the dangers of "groundless rumors" that many banks will not be able to roll over their CD's.

Mortgage funds have become scarce indeed, as District savings and loan associations are experiencing sizable deposit outflows. Preliminary data indicate the April outflow may have been as much as $100 million. This compares with a $200 million inflow in April 1973. Residential building and the building supplies industry are feeling the crunch.

Businessmen and bankers in the District continue to express optimism regarding the six months outlook for business in their local markets. But most feel that the national economy will show little growth over this period.