Beige Book Report: Chicago
June 17, 1970
Businessmen and economists in the Seventh District have tended to lower their expectations on output and sales for the economy and for individual firms for the remainder of this year. Increasingly, expectations are that the "low" for the general economy will be in the third or fourth quarter with no substantial recovery until 1971. Labor markets have continued to ease, especially for marginal workers and middle management and professional types. Although most respondents have not observed a slowing in the rate of price inflation, price increases appear to be fewer in number and harder to sustain.
The general atmosphere is one of uneasiness rather than deep gloom. The stock market, price inflation, reduced liquidity, slow payments on receivables, lower profit margins, strikes, Cambodia, and civil unrest continue to be mentioned in any conversation. Nevertheless, very few informed persons expect a cumulative decline in the economy. Rather, the prevailing pessimism reflects the view that a significant improvement is not at hand, and may not occur until next year.
Consumers are said to be purchasing lower priced autos, furniture, appliances, television sets, and clothing, and to be reducing purchases of such foods as meats and delicatessen items. The. truck strike in the Chicago area has seriously depleted may retailers' inventories, making it difficult to discern shifts in consumer purchasing preferences. But outside Chicago, department stores report intensive price consciousness in shopping and reduced sales in most departments except in the "budget or bargain basement". Discount store sales are reported to be holding up well.
Many businesses are pushing cost-cutting programs through reductions of staff; lower outlays for advertising, public relations, entertainment, and other items not directly related to production; inventory curtailments; and postponements of short lead-time capital expenditures.
The truck strike continues to be a very significant depressing force on output and retail trade in the Chicago area. The embargo on truck shipments of components and finished goods to and from the Chicago area, of course, continues to hamper output in other parts of the country. The impact of the strike is said to be especially hard on smaller manufacturers and retailers who are less able to utilize alternative arrangements for moving goods.
The rise in policy loans at life insurance companies has moderated in the past month from the extremely high levels noted in the first third of the year. Life insurance companies would like to improve their liquidity and are not seeking new long-term investment outlets.
Loan demand at large commercial banks appears to have eased somewhat, but this is not a universal view. Demand on the capital markets by corporations and municipalities continues to be intense. Little hope exists for lower interest rates in the near future, and some experts think the peak in long-term rates has not yet been reached.
It is becoming increasingly clear that output of nonelectrical machinery is declining. Manufacturers are ordering less equipment. Farm machinery sales continue poor. Construction machinery has been holding up fairly well at least for large pieces of equipment used in road building and heavy construction. Orders for capital goods components have dropped sharply in recent months.
Inventories of manufacturers generally do not appear to be excessive. Emphasis is placed on smaller shipments and rapid deliveries. In some cases, producers emphasize that distributors and dealers are working on a "hand-to-mouth" basis. Inventories of consumer hard goods, other than automobiles, have been reduced in line with lower sales since the start of the year.
The steel picture in the Chicago area is clouded by the truck strike, but output and orders have been holding up fairly well. Increasing competition in European markets has been associated with lower prices which, in turn, have reduced the incentive of Chicago area producers to sell in those markets. Foreign demand is expected to soften in the second half of 1970.
The rise in unemployment is expected to continue through the year, with some analysts expecting the national unemployment rate to reach, or exceed, 6 percent in late 1970 or early 1971. Some firms that had been allowing attrition to reduce their labor force rather than laying off workers have now begun to furlough workers. Many employers comment on the extremely sharp increase this year in the number of unsolicited summaries from job applicants with extensive experience.
Domestic airline traffic in May and early June has continued below last year, despite the end of the controllers' strike. Pilots have been laid off, training of stewardesses has been reduced, equipment has been grounded, and profits (or losses) are "near the disaster stage". Air travel to foreign countries, in contrast, is extremely good, running about 30 percent above last year.
Sales of passenger cars continue to be disappointing. Truck sales have failed to pick up with the settlement of the national truck strike, as had been expected. A long strike in the motor vehicle industry is taken as "in the cards" by most observers.
Many people still talk favorably of wage and price guidelines or controls, perhaps an immediate universal "freeze" but the difficulties of implementing such programs are widely understood, and most people appear to be thinking of the "other guy's" price or wages.