Beige Book Report: Chicago
October 14, 1970
The continuance of the General Motors strike into its fourth week with no evidence of agreement in the near future, has had a somber effect on attitudes of businessmen and bankers in the Seventh District. In part, this pessimism is related to fears of difficult negotiations in other industries, especially farm and construction machinery. Secondary layoffs by producers of parts and materials for motor vehicles, including steel, continue to mount. Steel companies had suggested earlier that they would continue production for the auto industry for two weeks. This period has passed and they have cut back.
The announcement that one large construction machinery producer has agreed to an unlimited cost of living adjustment (no "cap") means only that an immediate strike was avoided. Demands for a large first year pay increase, and the demand for a $500 monthly pension after 30 years remain unresolved.
Job markets continue to ease throughout the District, more than can be accounted for by the GM strikes. Orders continue weak for capital goods producers, although many believe new business is merely postponed, and will pick up as soon as the general economic outlook is clarified.
Management negotiators in labor disputes are perplexed by the huge number and variety of demands by the unions. At GM these are supposed to number 32,000, including permutations and combinations at the local level. At one medium-sized plant in another industry, more than 300 demands have been made. Moreover, the international unions are yielding more autonomy to locals as to when strikes can be called regarding grievances. Aside from large demands for increases in compensation business managers are greatly concerned about pressures for more union control over work standards, work assignments, and other operational matters over which they believe management must retain control to achieve maximum efficiency.
Virtually all business firms continue to follow very cautious policies on new hirings and nonessential expenditures. For example, expense accounts and travel budgets are under very close scrutiny.
Price increases continue to be widespread and substantial, but not so numerous as last year or earlier this year. Most important of the recent increases have been in vehicles, business equipment, electrical apparatus, consumer durables, chemicals, and containers. Price weakness now is showing in steel as well as in non-ferrous metals. Price cuts have been indirect in some cases, involving reclassifications of products and other methods. On the other hand, some substantial price increases (6 percent for an important class of equipment) are being effected "quietly."
Credit continues to become more available, hut mortgages for single-family homes are still difficult to obtain in this region. Also, a number of banks and finance companies have reduced or eliminated purchases of automobile paper from dealers because of reduced profit margins and increased delinquencies and repossessions.
A committee of business and financial economists from the
Indianapolis area (with representation also from Indiana
University), that has routinely prepared economic projections to aid
the state in making revenue estimates, recently has prepared a GNP
forecast for the period through mid-1973, that closely parallels the
Board staff projection for the current and next two quarters: 1970—fourth quarter $998 billion; 1971—first quarter $1,016 billion;
1971—second quarter $1,035 billion. For the period after mid-197l,
the Indiana committee projects quarterly increments in current
dollar GNP (SAAR) climbing from $20 billion (1971-3) to $25 billion
(1972-3). Underlying the committee estimates is a slightly higher
projected unemployment rate and slightly higher price deflator than
those in the Board projections.
Purchasing agents in the Chicago area report an improvement in delivery schedules from suppliers in recent months. Price increases are not quite so numerous as earlier in the year, but the proportion reporting paying higher prices is still almost 70 percent, while lower prices are reported by only 1 percent. The numbers of firms reporting reductions in output, employment and new orders continue to be more common than those reporting increases, but the margin has narrowed. The number of firms cutting inventories has declined, but reductions continue to be more numerous than increases.
Larger commercial banks in the District report that loan demand is rather sluggish or at least not "robust." Reins have been loosened on loan officers but loans after adjustment for sales are not going up. Corporations continue to express concern with their illiquid positions and are reported to be willing to "pay the price" to fund debt, However, with compensating balances, the prime rate is still above market rates. The receivables position of some corporations has apparently improved and payments are now on time. Banks have no problem in getting funds. Several continue to pull rates down and still get all that they need.