May 5, 1971
A number of important industries have experienced a turn for the better in the past several weeks. Retail trade apparently has improved, and there is some concern for the adequacy of inventories if consumer demand accelerates. Prospects for residential construction appear even stronger than in earlier months, and there is a growing tendency to project the vigorous picture into 1972. Capital-expenditure prospects generally remain unfavorable, but petroleum firms have raised their sights on investment spending. Markets for goods are more competitive, and price increases have been less frequent in recent weeks. Demand for labor remains very slow, and unemployment apparently is continuing to rise in this region. Crop plantings are ahead of schedule, and larger acreage is being planted. Funds continue to pour into savings media, but demand for credit, other than for residential construction, remains at reduced levels.
Two recent meetings of business economists in Chicago sounded a more optimistic tone than at any time in the past year. Among the manufacturers reporting a firmer trend in orders or sales were producers of building materials, components for industrial equipment other than "heavy stuff", light and heavy motor trucks, petroleum production equipment, nonautomotive consumer durables, farm equipment, and meat products. Reports on retail trade were more favorable, but the improvements noted have been modest. Demand for airline services remains poor, and service is being curtailed. Steel shipments have been somewhat less than anticipated, and order backlogs "probably have peaked". Demand for most machinery and equipment, and industrial and commercial buildings, has not improved, and little hope exists that a significant upswing will occur in the next several months.
In the Chicago area, demand for virtually all types of workers experienced, inexperienced, newly trained, and those with established skills-is said to be the weakest in "at least a decade". For some types of workers such as school teachers, and graduates of technical schools, the comparison must be pushed back further—perhaps to the late 1930's. One large university reports that only 25 percent of its seniors have firm offers of jobs, compared with 85 percent two years ago. The summer job prospect for students is said to be "hopeless". Construction unions are much more restrictive in issuing job permits to nonunion members, stating that many of their own members are out of work. Because of financial stringencies, many school districts have reduced, or will reduce, their hirings. Applications for teaching jobs are extremely numerous. Enrollment in many colleges and graduate schools is down this year, and further reductions are expected for the fall term. The effect of reduced college enrollment, of course, is twofold: fewer teachers are needed, and more potential students are in the labor force. Even banks have begun to limit hirings, and encourage early retirements. Voluntary quits are much less common than a year ago. As a result, fewer people are in job training programs. Available jobs are largely in low-paid service positions and in commission sales work.
Residential construction activity is picking up rapidly in most areas of the District. Nevertheless, ample supplies of workers are available in virtually all building trades. In the Chicago area, with a 31 percent rise in residential permits in the first quarter, 60 percent were for apartments, compared with more than 70 percent a year earlier. Available sites for new residential projects will become an increasing problem if the housing boom continues, mainly because of zoning and code restrictions. Recent municipal elections in Chicago suburban areas favored candidates opposed to multiple residences, especially low-income housing. Mortgage money is increasingly available at lower rates and easier terms. The "equity kicker" deals for financing apartment buildings, common in 1969 and 1970, have about disappeared.
Warm temperatures and relatively dry fields have permitted earlier than normal soil preparation and corn plantings in the Midwest. As a result, the increase in acreage planted may be even larger than the 4 percent rise expected earlier. Larger acreage may encourage purchases of farm equipment. Demand for farm equipment had been very weak earlier in the year, but sales are reported to have improved recently. Farmland values are reported to be rising moderately again, after leveling off last year. Agricultural banks are experiencing increased demand for farm loans. Because of rapid deposit growth, bankers hope to expand loans this year because loan rates (about 7 1/2 percent) are much more favorable than rates available on investment.
Business loan demand at large city banks remains very slow, and may have weakened further in the past month. Nevertheless, the recent rise in the prime rate was not considered a surprise, partly because earlier reductions were believed to have been excessive. Some city banks are expanding mortgage and construction loan activities. Savings inflows continue very heavy at banks and savings and loan associations. Rates paid on passbook savings and consumer-type certificates have been reduced by a growing number of commercial banks in the District, but the large Chicago loop banks have not reduced these rates and are not expected to do so in 1971. A significant volume of the inflow of funds to savings and time accounts represents money that had been invested in bills and similar instruments. Recent increases in rates paid on CD's by large banks, and some extension of maturities, indicate that banks are relying more heavily on this source of funds as a substitute for Euro-dollars.