The picture in the Seventh District continues to show marked contrasts among sectors to an extent seldom witnessed in the past. On the one hand, sales and construction of housing, standard-sized cars, the airlines, and certain other less important sectors have been hard hit. On the other hand, demand for capital goods, almost all basic materials, and many consumer goods remains intense and exceeds capacity. Except for autos and the airlines, there is very little evidence of output and employment being affected adversely by the primary or secondary effects of the fuel crisis. In part, this may reflect the fact that so many other goods and services are in short supply. Inventories are generally low, but badly unbalanced. Prospects for abatement of inflation appear dimmer than before. Nonautomotive retail sales in December apparently were very strong. Prominent forecasters of the general economy in this region are modest concerning the accuracy of their current projections because of the unprecedented nature of recent developments. Some point out that a gross national product (GNP) forecast has less meaning than usual for the individual business.

Our contacts with producers of a wide variety of capital equipment (e.g., for farms, construction, mining, industry, materials handling, railroads, and trucklines) indicate that the great strength of demand shown since early 1973 or late 1972 did not diminish in December or January. Exceptions are firms dependent on petrochemicals. In typical cases, new orders were up 50 percent from last year in December and backlogs were double. Moreover, most of these firms have controlled acceptance of new orders for at least several months; some have a large volume of firm but "unbooked orders"; some have surveyed order backlogs and have canceled orders believed to be soft; some have refused to sell to dealers for their inventory; and some have demanded renegotiation of orders booked at an earlier stage of the inflation. Altogether, these factors suggest problems in evaluating the Commerce orders data.

Steel companies continue to ship at capacity levels. There is little evidence of auto companies reducing orders, but such a trend is regarded as inevitable. However, at present, domestic markets (foreign markets remain unexploited) can absorb steel released by auto firms, and many users would like to build inventories. The bottleneck in the industry is not metal but finishing capacity, so that there is flexibility in adjusting the product mix. The industry insists that an allocation of residual fuel oil equal to 100 percent of 1973 usage would require production cutbacks. Oil use was increasing during 1973 because of natural gas cutoffs, pollution controls, closing of obsolete facilities, and shortages of coke.

The primary or direct impact of the energy crisis in this District thus far has been largely confined to the airlines, the petrochemical and related plastics industries, and wholesale and retail oil distributors. The major secondary impact has been on sales and output of standard-sized cars and recreational vehicles and on recreational areas. Almost all firms have taken steps such as reducing thermostats, doubling delivery runs, recapturing, and recirculating heat, etc. Many have been surprised at their success. These actions need not be "patriotic"; they are highly profitable and would have been induced in large degree merely by higher fuel costs.

Most areas of this region have ample supplies of natural gas for existing noninterruptible customers, but utilities are concerned that their favorable position based on sound planning may be eroded by Government orders to divert supplies to the East Coast. Large electric utilities also are in a relatively good position, in part because they have been leaders in developing nuclear power. There appears to be a marked shift to electric heat for residences, especially in Michigan where new gas customers have not been accepted since March of 1973.

Many people in this region (not necessarily the uneducated) believe that the fuel crisis is a fake, perpetrated to increase oil company profits and to divert attention from Government scandals and inflation. These views are encouraged by various prominent citizens and by newspaper columns and cartoons. The oil industry has a problem stating its case, partly because of many uncertainties in the supply-demand picture. Very little is known of demand elasticities, but it is feared that completely decontrolled prices could rise "explosively". Almost nothing is known of the size of inventories in the hands of distributors and retailers, to say nothing of oil users.

So many different materials and components are in short supply that a list could be constructed almost at random. Castings, forgings, bearings, steel, nonferrous metals, plastics, fuel (any fuel), and paper probably are cited most prominently. These conditions have led to widespread black markets (usually with no questions asked), innovative pricing practices, imbalancing of inventories by purchases of "what is available", a resort to barter or "swaps", "embargoes" on shipments awaiting favorable CLC actions, and steps by purchasers to aid suppliers. Some minor effects include elimination of "double-bagging" at supermarkets and long delays in production of records by popular rock groups.