Beige Book Report: Chicago
December 9, 1970
Many segments of the Seventh District economy are now reviving in response to the return to work of GM strikers in the second half of November. The agreement at Ford yesterday, December 7, removes another element of uncertainty. Other producers of durable goods with negotiations still pending will be under great pressure to follow the established pattern.
Aside from the strike influences, there appears to be little change in the basic trend of activity. Further declines in employment and output in business equipment industries probably are being offset by increases in output of consumer durables and materials and components for residential construction. Markets for labor, and for commodities, continue to become more competitive. Price increases are less frequent, and significant price reductions for custom-built business equipment are said to be offered in negotiation, although not publicized.
Projections of gross national product of 1971 by well-known forecasters in the Seventh District range from $1,030 billion to $1,055. (Beryl Sprinkel offered $1,050 at a luncheon today.) Expected gains in real output range from 2.5 to 4 percent, while expected increases in prices range from 3.5 to 4.5 percent. Some forecasts, not most, see an appreciable decline in the unemployment rate in the second half of 1971.
Businessmen and bankers appear to accept the general tone of the forecasts—inadequate growth and inadequate moderation of inflation. They expect their profit margins to be under heavy pressure, with dollar totals increasing about in line with volume.
Considerable optimism prevails (at least is expressed) over 1971 prospects for output and sales of all major classes of consumer durables, including appliances, TV, furniture, and autos. A record 10 million-car year is frequently suggested.
Warm weather in recent weeks (a record 70 degrees on some days in the Chicago area) is blamed for continued sluggishness of retail trade since Thanksgiving. A number of stores have already started sales on winter coats. Because unseasonal weather reduces traffic through the stores, sales of all types of goods are said to be depressed to an extent.
Aside from farm equipment and utility apparatus, producers of business equipment, and components for business equipment, are more apprehensive than a few months ago. Orders for machine tools, tools and dies, gears, drives, and forgings have been very weak. Layoffs and salary cuts are continuing. Hunger for new orders has induced price concessions. On the demand side, many recent corporate budget meetings, we are told, resulted in capital appropriations cutbacks. Such decisions, not irreversible, sometimes set back the "on stream target date for new facilities already under way.
Employers of organized labor complain of the lack of interest of labor unions in aiding productivity gains. At a recent discussion in Detroit, the head of the UAW, while discussing the problem of rising absenteeism at some length with a business oriented audience, stated: "Let's face it. It's the same in the auto industry as elsewhere. Nobody gives a damn any more.
In the Chicago area the supply of new office building space threatens to outrun demand. Large new buildings are under construction, and others are scheduled to start, following demolition. But current studies for future projects give negative results. After the present wave of building is completed, a dry spell of at least three or four years is foreseen.
Income of District hog farmers is being reduced by further price weakness for hogs. The sharp run-up in corn prices, 20 percent higher than last year in November, is also affecting the profits of cattle farmers, although cattle prices have been relatively firm. Twenty percent lower corn yields in Illinois and Indiana this year were caused by leaf blight and spring flooding.
Loan demand at commercial banks continue very weak, despite the prime rate cut. Time money is readily available at sharply lower market rates. Nevertheless, banks are very cautious in lengthening maturities and have maintained stiff quality standards on new loans. Meanwhile, insurance companies are seeking new investments more aggressively as net policy loan disbursements continue to decline. Mortgage money for houses is somewhat easier, but rates and terms have not eased much. There are sentient comments on the "very grave" financial position of various large stock brokerage firms.