According to the Reserve banks' reports, the economic recovery still appears to be proceeding quite slowly in most districts, with the industrial sector particularly sluggish. Strikes and strike-related effects have further dampened economic activity in some districts. The slow pace of the expansion has not yet generated renewed inventory accumulation. Retail sales are rising in some districts, but are slowing in others. The brightest spot continues to be residential construction. No improvement was noted in the employment situation. Prior to the President's imposition of the wage-price freeze, the bank reports indicated no slackening in the pace of inflation. In the financial sector, all the banks reported that business loan demand was slack and that flows into consumer savings accounts had slowed noticeably. Only three banks included reports on the reactions in their districts to the President's new economic policies. Initial reactions were highly favorable.

Durable goods manufacturing appears to be the most sluggish sector. The Boston, Richmond and Cleveland banks reported that new orders are weak in capital goods industries and backlogs are shrinking. The St. Louis bank noted that while orders are quite low for steel and durable goods manufacturers, nondurable goods producers are optimistic. A number of banks mentioned that suppliers to the construction industry were experiencing very good sales.

The construction sector is reported except New York. Nonresidential building, as booming in all districts well as housing starts, was robust in a number of districts. The San Francisco bank reported that residential construction is providing the principal stimulus to the district's economy. Heavy construction activity was cited as a major reason for low unemployment in several areas within the Atlanta district.

Half the banks reported that retail sales were rising in their districts. The San Francisco bank, however, noted that retail sales were only holding steady and the Atlanta bank reported that sales have moderated recently. In the New York district, retail sales varied from trendless to slowing.

There does not appear to be any strengthening of inventory spending. The Richmond bank reported a substantial increase in the number of manufacturing firms decreasing inventories and that both trade and manufacturing inventories were still at higher than desired levels. Inventory cuts by industrial firms were also expected in the Cleveland district. Sluggish retail sales were cited by the San Francisco bank as restraining inventory investment. The St. Louis bank reported that steel producers expect steel inventories to be run down over the next six months, depressing their production levels. The Cleveland bank reported the beginning of coal stockpiling in anticipation of an October strike in the coal industry.

Strikes and strike-related effects were depressing economic activity in several districts. Coal mining areas in the Richmond district have been hurt by the rail strike and the slowdown in the steel industry. The copper strike is reported to have affected economic activity in Maryland, Utah and Arizona. The San Francisco bank noted that the rail strikes especially hurt shipments of agricultural products, while the dock strike is affecting a widening number of industrial and agricultural producers in the twelfth district.

No improvement in the employment situation was noted by any of the Reserve banks. The employment situation was described as unchanged by the Richmond, Dallas, and Chicago banks and as weak by the Minneapolis bank. The Chicago, Cleveland and New York banks reported high unemployment in steel producing areas, with layoffs continuing during early August.

Continued inflation at recent rates was mentioned by a number of banks. The Atlanta and Dallas banks reported that retail prices were expected to continue increasing at recent rates. A survey of purchasing managers by the Kansas City bank (made before the President's August 15 speech) found concern about the near-term prospects for any slowing in the rate of inflation. In the Minneapolis and Cleveland districts, concern was reported over the inflationary effects of the steel settlement and announced steel price increases. The Minneapolis bank reported that a number of price and cost increases have already been instituted as a result of the steel price hikes.

In the financial sector, the demand for business loans was generally reported as sluggish. The Richmond, San Francisco and Chicago banks, however, reported either good or improving demand for business loans in sections of their districts. Most banks also reported a considerable slowing in the growth of time and savings deposits. Fears of disintermediation were mentioned by the Kansas City, Chicago and Atlanta banks.

Only a few banks contacted their respondents after the President's speech. Philadelphia reported that directors, bankers and businessmen in the third district, while surprised at the magnitude of the policy changes, were overwhelmingly in favor of them. Businessmen noted problems in implementing the wage-price freeze, but their general mood was one of cooperation and optimism. Initial reaction in the Chicago district among bankers and businessmen was also generally favorable. Only one bank director in the Boston district was available for comment. He was very enthusiastic about the new policies, although he noted some problems in implementation for banks. As a result of the President's speech, the Boston bank's academic respondents were generally encouraged by the prospects for breaking inflationary expectations and achieving a more stable international monetary system.