The general economic picture in the Seventh District is the most vigorous in many years, certainly since early 1968. Prices of industrial goods are rising at a faster pace. Reports of shortages of skilled or trainable workers are increasingly common. Lead times are stretching out, very sharply in some cases, and there are indications of a cumulative impact on orders as firms attempt to assure their lines of supply. Inventories are low, and attempts to rebuild inventories relative to sales are unsuccessful in many cases because of rising shipments. Considerable confusion exists on the part of those who attempt to reconcile various official statements on Phase Three. The tendency here is to discount reports emanating from eastern centers that a significant slowdown, even a recession, is probable by the fourth quarter—assuming, some add, no critical "money crunch".

Except for higher prices of imports, the dollar devaluation and the continuing international monetary crisis have been taken calmly by Midwest businessmen, so far as we can determine, and have not influenced domestic plans or expectations. Those selling abroad often have plants abroad or use licensees. Despite increasing foreign demand and more competitive United States prices, there is little interest in pushing foreign sales. Businessmen point out that a large share of foreign trade, both in imports and exports, is in "noncompetitive" items.

Each month additional firms report that they have joined the mainstream of the vigorous business uptrend. This has been most significant recently in the case of capital goods associated with expansion rather than renovation, such as overhead cranes. Mining equipment, which had been in a slump, has revived again.

Despite nagging concerns of various sorts, business sentiment is ebullient. Nothing is so conducive to "confidence" as rising sales and orders accompanied by rising profit margins. A typical report shows sales up 15 percent and profits up 25 percent last year, with similar gains expected for 1973.

For fear of "rocking the boat" there will be great reluctance to "get tough" in upcoming union negotiations. The 5.5 percent (or 6.2 percent?) wage guideline is looked upon as a dead letter for union negotiations. Earlier hopes that some unions would be satisfied with cost-of-living adjustments plus some fringes, such as dental care or voluntary overtime, appear to be fading. Aside from current needs, firms facing possible strikes later this year will try to build inventories to strengthen their bargaining position.

In addition to rising output, sales, orders, and employment, purchasing agents report longer lead times and increasing quality problems. Higher prices are being paid for a long list of items, both hard and soft goods from both foreign and domestic sources. Lumber prices are described as "shocking". The Chicago report for February shows 87 percent paying higher prices, up from 60 percent a year ago and above the 83 percent peak month for 1969. In the Milwaukee group, 81 percent paid higher prices in February, equal to the proportion in the peak month of 1969.

The steel market is booming. Some mills are booked through the second quarter for cold-rolled sheet. Some quote August delivery. Steel importers who are unable to get assurance of adequate supplies from foreign sources are having difficulty getting booked on United States schedules. Some importers and some United States mills have stopped taking on new customers. It appears that United States steel mills could not supply all United States needs in 1973. Perhaps 10 million tons of imports will be required, even if the United States industry operates at capacity in 1973 with shipments of 100 million tons.

Availability of trained, or readily trainable, workers is said to be limiting output increases in some industries. A typical list of shortage occupations includes "electricians, auto mechanics, appliance repairmen, welders, machinists, tool and die workers, pipe fitters, and plumbers". A composite list could be extended to include almost any recognized skill.

Additional firms complain about lack of availability of components, especially metal fasteners, castings, forgings, bearings, but also more elaborate parts such as drives, couplings, and electric motors. Spokesmen say that business is the strongest since "1968" or "1966", "in ten years" even since World War II". Part of the problem has been the closing of smaller plants and a rather sudden reduction in availability of foreign supplies, especially from Japan.

Construction may show weakness later in the year. New project developments have been slowed by environmental factors, overbuilding in some areas, financial problems, and fuel shortages. But currently, demand for all building materials is very strong, and many items are on allocation or critically short.