Beige Book Report: Chicago
August 12, 1970
Confidence in the overall stability of the financial markets appears to have strengthened in the past few weeks, despite some problem areas indicated below. Convincing evidence of a significant up trend in total output and employment is still lacking, however.
Last week's 7.5 per cent Treasury Note offering which attracted thousands of small investors to the Chicago Reserve Bank aroused widespread concern among banks and savings associations that feared large losses of savings deposits. Interest in the issue was sparked by an article originating in a Chicago newspaper that also appeared in papers in New York and Houston. At present, large Chicago banks indicate that the first reports of the impact on their savings departments were exaggerated. Savings associations, on the other hand, apparently have raised their estimates of the volume of withdrawals used to buy the notes and expect August to be a red month in contrast to normal experience.
Some smaller banks complain that their deposits and earnings have been adversely affected by the lifting of Q ceilings on large CDs in the 30-89 day maturities. Some large banks find the supply of funds available for investment in certificates ample, but are reluctant to pay the prevailing 8 per cent rate.
Overall loan demand apparently has eased somewhat since midyear. There are reports of banks de-emphasizing consumer loans, with greater apprehension as to the quality of this paper.
There are widespread complaints over the slowness of payments on receivables by business creditors, but it is generally recognized that, in most cases, the situation reflects the high cost of funds and restricted liquidity, rather than actual distress.
Price increases for durable goods continue to be about as numerous as in recent months, and there is no clear evidence of a diminution of the rate of rise of prices of finished goods. Rising costs and unsatisfactory volume are causing transportation firms to push regulatory authorities for appreciable increases in rates in hopes of improving earnings.
Job markets continue to soften as indicated by unemployment compensation claims, and reports of restricted hiring practices. Increasingly, skilled workers such as machinists, teachers, and other professional types are listed among those seeking work. Lists of unfilled job openings are the smallest since the early Sixties.
Despite the improved labor supply picture, wage and pension demands continue large and are backed by militant worker organizations in state and local governments as well as in factories, utilities, and transportation companies. Local strikes are frequent and prolonged. The likelihood of a major strike this Fall, not only in the auto industry, but also in the farm and construction machinery industries, is taken virtually for granted.
Demand for construction equipment and for various types of industrial equipment remains disappointing. In the case of consumer durables, demand for furniture and TV sets remains depressed, while demand for most household appliances has improved in recent months, and is surprisingly strong in view of the continued low level of housing starts.
On the bright side, some of our Directors associated with food merchandising, recreational vehicles, home maintenance products, and laundry equipment report that sales have been excellent and above budgeted levels. Farm equipment purchases increased from a year ago in June, the first rise recorded in 1970. Some centers producing auto parts are experiencing a revival of activity as 1971 models go into production.
Complaints of increased foreign competition are more prevalent both for producer and consumer goods. A shoe factory that started operations in an Illinois town in 1968 has ceased operations, blaming import competition. Resort business in vacation-oriented areas is said to be poor. A number of older manufacturing plants in the District have been closed recently because of Government pressures to renovate facilities to reduce pollution. The outlays required to comply were deemed excessive.