Beige Book Report: Chicago
September 9, 1970
The almost universal view among informed observers in the Seventh District is that only a very slight rise in real activity is likely through the remainder of the year. Businesses, consumers, and local governments continue to show caution in current spending and in making new commitments. Some industry analysts think that equipment output will continue to decline, perhaps reaching a trough in the second quarter of next year. The rate of price rise for finished manufactured goods appears to have been maintained. Labor markets continue to ease in almost all areas and lines of activity. Residential construction is headed up again, but most of the improvement is expected in multi-family units.
The great uncertainty, of course, is the possibility of a long strike in the auto industry. Those who follow the industry think it likely that negotiations will continue by mutual consent without a work stoppage beyond the September 14 deadline. The UAW is talking with General Motors and Chrysler, with the indication that one or the other will be the target if a strike is called. This development spotlights the limited weight that should be placed on "informed opinions." Some knowledgeable people had been virtually certain that Ford would be the target again because ''G.M. is too strong, and Chrysler is too weak."
Production is proceeding very rapidly on 1971 models, especially the new small cars. Important components of the new small cars—engine, transmissions, etc.—are being made in England and Germany, and some cars are being made in Canada. Therefore, if sales of the new small cars are strong, as expected, the beneficial effect—both on the balance of payments and on U. S. employment—will be limited.
Merchants find that consumers are continuing to "trade down" both hard and soft goods and are cautious in incurring installment debt.
Sales of trucks and trailers recovered after the truck strike that ended in the Chicago area in early July, but the improvement was less than had been expected. Demand for trailers is not expected to revive until next spring.
Sales of farm and construction machinery have failed (by a wide margin in some cases) to meet expectations. New orders for machine tools are reported by one producer to be the "worst since the Thirties." This may be an exaggeration, but it characterizes the pessimistic mood of many equipment manufacturers. But sales of some types of equipment—associated with electric power generation, air conditioning, mining, and data processing—have remained relatively strong. New orders for a variety of capital goods components have improved slightly in recent months after a sharp decline in the first half. Despite the general pessimism, most equipment producers are convinced that many orders hang in abeyance awaiting a clarification of the business outlook.
A number of manufacturers who have reduced output report that inventories, both of purchased materials and end products, are at desired levels. An appreciable pickup of sales would require additional output to keep pipelines full.
Steel firms in this area are. losing the export business that they obtained in the past year. Mill inventories are being maintained to fill domestic orders rapidly as required by close competition. With steel a notable exception, delivery schedules have not improved as much as in past years when excess capacity became general. Partly, this is because producers prefer to accumulate sufficient orders to permit economical runs of particular products and partly because of reductions in staff and other economies on the part of suppliers.
The Chicago-Gary steel area has an ample labor supply for the first time in about five years. Only special skills are hired currently.
Despite the rise in unemployment in all areas, employers continue to complain of the low quality of job applicants, absenteeism, "poor attitudes," and related factors that hamper efficiency. Experienced workers with clerical, mechanical, and professional skills are still in demand, and less desired positions in restaurants, hospitals, laundries, dry cleaning, and commission sales remain unfilled.
Vacancy rates for housing units in the Chicago area have increased somewhat. Rents on apartments appear to have stopped rising. Doubtless, these developments are related to increased unemployment. Office space also has become more available. In view of the tremendous volume of office space scheduled to come on the market in downtown Chicago in the next few years, fears are expressed that the area will be overbuilt. We have no evidence, however, of cancellations or postponements of plans for construction of large new buildings—some very large indeed.
A reliable assessment of the damage caused by the corn blight is not available. Infestation is scattered geographically and the degree of damage varies widely, even within the same fields. Recent field reports, however, indicate a much smaller loss than had been feared—perhaps well under 10 percent of the crop. Moreover, carryover supplies of corn from previous harvests and large supplies of other grains assure ample feed for increased livestock production. Small seed corn companies are adversely affected because they concentrate on varieties that are susceptible to corn blight. Some of the larger seed companies are said to possess varieties of seed that are resistant, but the available quantity of such seed is not known.