The fuel situation was potentially critical in the Seventh District before the curtailments in oil supplies resulting from the Mid-East war. The President's conservation speech of November 7 was greeted as long overdue. Attempts to assess the overall impact of fuel shortages are still inconclusive. Demands for workers are very strong, and total consumer spending apparently continues at a very high level, despite reports of "consumer pessimism." The availability of residential mortgage funds has eased somewhat in the past month, but no significant reversal of the decline in residential construction is foreseen before mid-1974. Demand for capital goods (in fact, for all manufactured goods) is intense with widespread shortages of materials, components, and manpower impeding attempts to increase output, especially of buildings and equipment. Crop harvests have progressed rapidly. Farmland values have jumped sharply in the past year.

Business firms, governmental units, and many individuals are taking steps to cut consumption of fuel and electricity along the lines suggested by the President. Major electrical utilities in the District appear to be in a relatively good position to handle demand this winter because of relatively heavy use of nuclear power and coal. Many industrial users of natural gas and propane have been notified that their fuel would be curtailed or shut off. Some plants could shift to oil, but they have no current basis for an allocation. There is great uneasiness that layoffs will occur as a result of fuel shortages, not only in the industries using fuel and petrochemical feedstocks, but also in plants that require plastic parts and other components.

A "shakeout" of weaker competitors in the motor home and other recreational fields is said to be near-at-hand. Such a shakeout has been in progress for the past year in modular home building, and plant shutdowns are still reported.

The mortgage market has eased with rates in the Detroit area reduced from 9 to 8.5 percent in the past few weeks. The 8 percent usury ceiling in Illinois continues to limit new loans. Home sales in the Chicago area were off about 50 percent from last year in recent weeks. Nevertheless, a recent survey shows prices of existing homes in the Chicago area to average 10 percent above a year earlier, compared to an 8 percent rise in the previous 12 months.

This Bank's survey of farmland values shows an average increase of 17 percent from a year ago as of October 1, and a rise of 8 percent in the third quarter. These are the largest increases in the 20 years of the survey. The soybean and corn harvests are coming along very well. Most areas report lower grain moisture content (and better quality) than last year, so less fuel will be needed for drying.

When polled concerning their views of the U. S. economic outlook for 1974, business and financial executives in the District report expectations of slower growth (but no recession), continued rapid price inflation, weaker consumer markets, large capital spending, strong exports, and some rise in unemployment. This should be no surprise because they all see the same national publications and subscribe to the same services. When asked about their own prospects, most all executives report continued problems in meeting demand.

District experts are very concerned about reduced availability of diesel truck fuel, which could cut production in many factories dependent on trucks for shipments in and out. Postponements or reversals of environmental regulations relating to types of fuel used are deemed essential. Moreover, price controls are interfering with the most efficient distribution of available supplies. Gasoline prices in the Chicago area have jumped to 45-47 cents for regular, and a further boost to 55 or 60 cents is anticipated for next spring.

Factory output is being limited in most major industries by availability of supplies and manpower, not by lack of demand. Auto sales in October were somewhat below expectations, but sales still reflect production shortfalls resulting from lack of components and strikes. Consumer purchases of small cars, appliances, furniture, TV sets, audio products, and most soft goods are at a very high level. Demand for capital goods is so vigorous that some firms are having trouble untangling their order books. Farm equipment firms are "swamped" and will maintain output in the off season. Steel output is expected to be as large in 1974 as in 1973, despite a cutback in motor vehicles. Steel shipments earlier in 1973 were helped by liquidation of mill inventories and, therefore, steel shipments are expected to be lower in 1974. No net growth in steel capacity is expected in 1974, but a large expansion program has been announced for northern Indiana—the first such announcement in recent years. Foreign demand for capital goods and for steel is excellent in virtually all markets, but not all orders can be accepted because of U.S. needs.