October 10, 1973
Continued net outflows of deposits from Seventh District S&Ls have sharply curtailed the volume of new mortgage loan commitments, but all other major sectors, including total construction activity, continue vigorous. The supply picture for lumber, gasoline, and beef has improved substantially, but supplies of a broad range of basic materials remain very tight with no significant improvement expected for two years or more. Prospects remain favorable for substantial gains in output of corn, soybeans, and other crops. Job opportunities exceed the supply of available workers in most district centers.
Most Seventh District professional forecasters, and those laymen who indulge in projections, endorse the widely-accepted view that 1974 will see real GNP up about 2 percent (but no recession), with prices rising only slightly less than in 1973. Most executives see little relevance for their own businesses in the standard GNP forecast, but there is an underlying fear that any general slowdown may lead to a recession.
The net outflow of funds from S&Ls apparently continued in September and early October, but may have abated somewhat. Two large Chicago S&Ls announced recently that they would make no new loans, but they are continuing to close a large volume of loans based on earlier commitments. New residential permits in the Chicago area are now running well below last year. Lumber prices have come down sharply, and lumber dealers report cancellations of orders. A manufacturer of gypsum board and other building materials, however, says products from all of its plants remain on allocation. A well-known housing expert recently told a Chicago audience that his forecast of 1.5 million starts in 1974 is propaganda to get action in Washington.
In contrast to residential building, prospects for nonresidential construction, especially manufacturing, are excellent. Many buildings have been delayed in 1973 because of shortages of various components, particularly structural steel. A building expert recently predicted that construction costs of new supermarkets will increase 8 to 10 percent annually for the next ten years.
Shortages and bottlenecks continue to play a major role in discussions of business trends. In September and August, strikes and shortages of parts and components kept output of cars and trucks well below schedules.
Steel output in recent weeks did not regain the level of last spring because of the need to rejuvenate facilities and because of some shortages of manpower and materials. Order backlogs of steel firms are determined by their policies on acceptance of orders. Aside from steel, supplies of aluminum, copper, zinc, fuel oil, natural gas, petrochemicals, plastics, nylon latex, paper products (especially containers), and fertilizer are all tight. For most of these products, no significant gains in total capacity are expected for two to three years, when announced facilities will come on stream. In some cases, notably steel, no expansion plans have been approved, and in others—petroleum, paper, and chemicals—plans are not being pressed as urgently as needs would seem to indicate.
A cold winter, experts say, could cause important shortages of distillates and fuel oil. Voltage cuts by some utilities six weeks ago reflected inability to get fuel for some "peaking" plants. Trucking industry observers are very concerned about the adequacy of diesel fuel.
A spokesman for the Penn Central told a Chicago audience that if liquidation is ordered, the company would start shutting down by October 31 and would finish the process by November 15. The steel and motor vehicle industries say they would have to shut down within a few days following a cessation of rail transport. Massive federal aid, or nationalization, may be necessary.
Most firms have unfilled requisitions for help—especially for skilled workers and less desirable work (such as dishwashing and night shifts), but also for trainable people in general. Employment in the Chicago and Detroit areas has not increased as much as elsewhere relative to 1969. In part, this reflects the deterioration of job opportunities in various areas of core cities, but also the problem of transporting people from older residential areas to jobs in rapidly growing outlying areas, and to the industrial complex at the base of Lake Michigan.
The Chrysler labor contract is still not completely understood, but is said to be more generous than is generally appreciated. One section calls for the company to pay any taxes levied in connection with proposed federal health insurance. (Why not all social security taxes? Or income taxes?) The Chrysler pact probably will set the pattern for all auto and farm and construction machinery contracts. Most will probably provide "30 and out" at a minimum of $600 or more per month, more holidays, sabbaticals, dental insurance, and unlimited COLAs.
Wet weather is slowing harvests, but prospects for record crops remain excellent. Shortages of propane for drying grain are feared. Substantial declines in wholesale prices of meat have been reflected only to a limited extent at retail. Meat supplies have increased substantially since late August, but remain below last year's level.