The economy of the Seventh District continues to be characterized by sharp contrasts, with demand for various consumer products substantially reduced while demand for machinery and equipment remains intense. Orders backlogs for equipment continue to mount. Shortages of materials and components remain severe, despite reduced requirements for motor vehicles. While prices of agricultural commodities have declined, prices of most industrial goods continue to rise, with substantial additional increases likely for most finished goods as controls are relaxed. Labor markets have eased in most areas, but many employers find it difficult to recruit quality workers. Lines at gas stations in the Chicago area have largely disappeared since late February. Overall, morale appears to be holding up fairly well, and businessmen in less vigorous industries frequently report that volume has been "better than expected". The availability of mortgage credit has improved significantly, and most real estate people believe the low point for their industry has been passed.

Increasingly, the public has been acclimated to more rapid price inflation, and any price declines will be a welcome surprise. Many businessmen think that a broad sector of basic commodity prices is vulnerable to declines, partly because materials are being hoarded by some users. Nevertheless, rising costs for labor and practically everything else, coupled with controls, have build up a backwater of pressure for higher prices for virtually all components and finished goods. There are widespread complaints of gray or black markets, with items offered by speculators at prices two, three, or more times higher than original manufacturers' prices. Under controls, prices for steel and petroleum products are called a "crazy quilt" with widely different prices quoted by various "legitimate" corporations.

Despite cutbacks by manufacturers of motor vehicles and other products, and the reduced level of residential construction, shortages of materials and components remain as bad as before. Steel sheet is more available, but shortages of other steel products, nonferrous metals, castings, forging, motors, valves, etc., are impeding production. Capital goods producers find that it is difficult to schedule work efficiently. Problems of supply are intensified by slower truck speeds, requirements that trucks wait for full loads, and longer freight trains.

The strength of demand for capital goods has not let up. The energy problem is directly responsible for strength in major areas. Often new equipment is related to development of energy resources, and many types of equipment can do more work per unit of fuel. Shipbuilding (especially in Wisconsin) and barge construction have now joined the boom industries. Heavy trucks and equipment for railroads, agriculture, construction, mining, and oil and gas well drilling and transmission are all booked out far in advance, and many firms have large unbooked or "memo" orders. Some suspect that there is "water" in the backlogs, but that this is not likely to be apparent for months to come.

Steel firms in the Chicago area have been complaining about shortages of iron ore, scrap, and coking coal for several months, now. The main problem is the West Virginia coal strike of the past two weeks, which is adversely affecting production at several of the most important mills. Steel released by the auto firms has been absorbed by other users, either as sheet or in other forms. One large-area steel firm will not accept orders for the third quarter until April 1. It is expected that the order books will soon fill up after that date.

Auto firms are making desperate efforts to convert to smaller cars. There is no sure knowledge of the time schedule for "conversion". The bottleneck is mainly small engines, for which new production lines composed of specialized machines are on order. Announcements of projections of the increase in the percentage of capacity to be in small cars later this year, or in 1975, have limited meaning because large-car capacity is being reduced as small-car capacity is increased. Layoffs at the auto firms have hit white-collar workers as well as blue-collar workers-sometimes by forcing retirement of men as young as fifty-five. Laid-off auto workers typically get 95 percent of their base pay, and are not anxious to seek other jobs. Also, other employers are reluctant to hire workers who will return to their former jobs when called.

The construction picture is mixed. Commercial construction is weaker than expected. Public construction is also less than expected, partly because of shortfalls in gas tax receipts and tolls. Residential mortgage funds have become more available, and some Chicago area savings and loan associations are offering 10 percent downpayment loans. A gradual improvement in residential construction is anticipated, with some shift away from scattered sites and closer to public transportation. Industrial construction is going full blast.