February 7, 1973
The expansion in the Seventh District is vigorous and all but universal. The capital expenditure outlook is exceptionally strong. Reports on retail sales indicate that January continued the strong pace of December. Phase III has allowed greater flexibility, but most larger firms continue to act as though they are still under restraint. A consensus of informed opinion in this region indicates output is being pressed to capacity in many sectors, and that restrictive monetary and fiscal policies are desirable.
Larger firms are proceeding cautiously under the "voluntary" controls of Phase III. They remain uncertain of the new structure, and do not wish to be called to account by Congress or the Administration and have to "justify" their actions.
The fuel crisis reported in the January Red Book worsened in the next 10 to 12 days. Shortages of natural gas and fuel oil were hampering production. The greatest concern was over supplies of diesel fuel that threatened to reduce intercity truck traffic significantly. In the past two weeks, however, the fuel crisis has receded. Partly, the improvement reflected steps taken to direct supplies to areas where shortages were most severe, and partly the greater flexibility in pricing permitted after January 11. Most important, however, was the turn from abnormally cold to unseasonally warm temperatures. (Pussy willows have been seen sprouting in the Chicago area.)
The fuel problem has not disappeared and a critical situation is expected again next winter; perhaps even in the next several weeks if the weather changes. Gas utilities have received permission to refuse additional commercial and residential customers. Despite an 8 percent increase in prices of distillates, prices of imports are still about one fourth higher than U. S. prices and U. S. oil companies are not bidding aggressively for additional foreign supplies. Oil companies, moreover, are not entering into the one to two year contracts normally offered to truckers and other large fuel users. Some industrial construction projects have been cancelled because supplies of natural gas or oil cannot be assured.
The energy crisis would be much less significant if nuclear power was becoming available as scheduled. Availability of nuclear power, now and potential, has been adversely affected in three ways: (1) some operating plants are not allowed to produce at full capacity, (2) at least one plant that is ready to generate power is being held back by litigation, and (3) some projects "planned and sited" are not being constructed because of environmental disputes.
An informal survey finds the following industries operating at effective capacity, although not in all operations: paper, petroleum refining, machine tools, appliances, furniture, color television, trucks, recreational vehicles, electric motors, construction machinery, flat rolled steel, foundries, tool and die shops, lumber, gypsum board, insulating material, fertilizer, and certain chemicals. Some large firms complain that "our suppliers can't keep up with us". Some also worry about the inefficiency of 7-day weeks, and problems of quality control under "forced draft" schedules. The problem of estimating capacity utilization rates is very complicated and some published rates (such as those for oil refineries) are said to be much too low, for a number of technical reasons. Capacity estimates in some industries include high-cost facilities that owners have no intention of activating.
Construction should be at a high level again in 1973. Residential construction, especially apartments, has been holding up well in this area. Prices of used homes are rising. The freeze on subsidized units did not surprise makers of construction machinery and building materials. Subsidized projects already approved will hold such construction near the recent pace for the next year. Contracts for manufacturing and commercial buildings have been very strong in recent months.
Job opportunities are excellent for skilled metalworkers, mechanics, draftsmen, engineers, accountants, stenographers, social workers, nurses, and other hospital workers. Demand for executives has increased substantially.
Teachers are in substantial oversupply. Nevertheless, teachers have been striking (illegally) for higher wages and other conditions. As a result of a long strike in January, the starting salary of Chicago teachers was raised to $9,800 for a 39-week year.
Many employers expect "reasonable" labor contracts in 1973. But the Pay Board recently approved a 13 percent pay raise for Chicago longshoremen, retroactive to last April. This contract calls for further increases of 11 percent in April 1973 and a 10 percent rise a year later. (The 1974 wage for these unskilled workers would be $8 per hour, including fringes. Other unions are well aware of these terms.)
A January survey indicates acreage will be up 7 percent for corn and 5 percent for soybeans. These increases may be boosted by revisions in the wheat and feed grain programs that will provide more acreage for corn and soybeans. Transportation bottlenecks are slowing movements of grain from elevators. Delayed unloadings at ports are partly responsible.