Beige Book Report: Chicago
November 11, 1970
Abstracting from the General Motors strike, a most difficult undertaking, business activity in the Seventh District appears to be moving in a level, or slightly upward, direction. Increases in output of some consumer goods and building materials about balance declines in capital equipment and defense-related activities. Job markets have eased further. Upward price pressures have moderated somewhat. Credit has become more available. Most businessmen and bankers anticipate no marked change in the general economy in the near future.
Rumors persist that progress is being made in the
G.M.-U.A.W.
negotiations. Developments such as the news blackout, effective
October 30, and the 17-hour bargaining session that ended at 2 a.m.
this morning have preceded important agreements in the past.
Local agreements at individual plants are being concluded daily, not only at General Motors plants, but also at plants of other motor vehicle producers. As of today half of 162 local agreements have been reached at General Motors plants. Except for the Detroit Diesel Plant in Detroit, however, it is our understanding that returns to work await agreement at the "big table."
Negotiations in many nonautomotive industries are marking time pending a final agreement at General Motors.
It is said that a return to work must occur in the next few days if General Motors plants are to return to full production in December. Holidays and vacations in that month will hamper operations.
The hardship on General Motors strikers, who get a maximum of $40 weekly in strike benefits, has been eased by the provision of food stamps and by the forbearance of understanding creditors.
Production and sales in this region currently are affected adversely by strikes or slowdowns in a variety of firms and industries that have not been affected by the General Motors strike. Among these are household appliances, construction machinery, autos (American Motors), and building activity. A carpenters' strike in Will County in the Chicago area has halted most work there, including some major projects. Also, as part of the General Motors strike, the EMD plant in a Chicago suburb, which employs 7,500 workers making railroad locomotives, is shut down.
Layoffs related to the General Motors strike are mounting steadily at plants producing steel, tires, and other components, in dealerships, and at auto transport companies. Other car producers are benefiting from the shortage of General Motors cars. Chrysler sales set an all-time high in October. Sales of Ford and AMC also are above the year-ago level. Nevertheless, most General Motors customers appear to be waiting.
Sluggish order trends for bearings, gears, fluid drives, and tool and die work indicate further declines in output of producer equipment. Meanwhile, orders for furniture and color TV have improved recently and appliance producers are doing well. Producers of most consumer durables report inventories in good shape at all levels, and appear to be relatively optimistic about future sales.
Steel inventory building for strike-hedge purposes will begin soon. Export business has dropped sharply. Inventories of steel have increased sharply at the mills, while steels users continue to cut back.
The frequency of price increases continues to diminish, while price concessions are more numerous. But the general uptrend in prices of finished goods and services appears not to have slowed significantly. Increases in worker compensation agreed to recently, or likely to be agreed to in the months ahead, are of such a magnitude that business managers consider additional price increases to be inevitable.
Programs to cut costs and improve productivity are being pushed vigorously. There are reports of smaller, marginal, plants being closed, especially in cases where operations can be consolidated.
Farm machinery sales improved in the third quarter. Increased supplies of pork and poultry are tending to depress prices of these commodities substantially. Corn blight damage still cannot be assessed precisely. A recent survey of Seventh District bankers, however, revealed that 80 percent thought the blight would have little or no effect on loan repayments by farmers. Ten percent expected an adverse effect on loan repayment capacity, but an equal proportion expected an improvement because of higher corn prices.
Loan demand at banks is markedly less vigorous than a few months ago. This drop in business loan demand clearly is related to heavy sales of securities. Large banks report CD funds in ample supply, even at reduced rates. The prime rate appears vulnerable.