Business conditions in the Seventh District cannot be generalized as either prosperous or depressed. Capital goods producers report that demand continues well above output capabilities. Housing is in a severe recession, with hopes dashed for a revival in 1974. Shortages of materials and components continue generally severe, although there has been spotty improvement. Strikes are hampering output of many manufacturers, and a ready-mix drivers' strike has paralyzed construction in the Chicago area. Some strikes are unsettled, despite offers in excess of 12 percent. Some major utilities are scaling down plans for future expansion. Price increases for manufactured goods continue at a rapid pace.

The latest reports still find capital goods producers working all-out to contain rising backlogs. Some of these companies, e. g., builders of freight cars and heavy trucks, and manufacturers of machine tools and presses, are gearing up to provide additional capacity.

Manufacturers are being warned that shortages of steel and aluminum will last for several years. Steel is the major barrier to higher output, overall. In most applications, there are no practical substitutes. Steel shipments are expected to be limited to 108-109 million tons in 1974, down from 111 million tons in 1973. Shipments have been maintained at recent high rates by further reducing mill inventories below levels thought to be rock bottom. "Next we may be dismantling the plant and shipping it." The main bottleneck in steel is in hot pig iron to charge steel furnaces. This is because of limited blast furnace capacity which, in turn, partly reflects shortages of ore and coke. Heavy charges of scrap now used limit steel furnace capacity. Availability of foreign steel has been reduced despite very high prices, and the incentive to export is strong.

Many components such as bearings, electric motors, drives, and forgings are short. Most important are castings because so many foundries went out of business in recent years. Major expansions of foundry capacity started early this year and lead times on molding machines were rapidly pushed out by many weeks.

Strikes, some of several weeks' duration, are halting output of forgings, motorcycles, locks, lawn equipment, and other products. In one case, a union rejected a company offer for a 13 percent first year wage boost (15 percent for skilled workers), a 40 percent rise in pension benefits, longer annual vacations plus a one-week Christmas shutdown, and other improved benefits. The obstacle to a settlement is the demand for a full COLA next year, rather than just a 9 percent wage boost.

A continuing strike of 2,500 ready-mix drivers in seven Illinois counties, including Chicago, began May 16. A large number of building trades workers have been laid off because construction projects have been halted awaiting concrete. With no settlement in sight and the best weeks of summer passing, the cement strike is said to be one of the most costly construction strikes in the history of the region.

Housing permits in both the Chicago and Milwaukee areas are off about 50 percent from last year. Apartment projects are especially hard hit, with Chicago area permits at the lowest level since 1958. With overhangs of unsold new units, it is surprising that prices of existing homes have increased further on average-with well-located units up 10 percent from last year. It is not clear that improved inflows of savings to S&Ls would help new construction this year. The S&Ls wish to build liquidity, an especially attractive move with high rates on money market instruments. The Illinois legislature passed a bill to raise the state usury ceiling on mortgages from 8 to 9. 5 percent, but the governor has not signed the measure.

Fewer purchasing managers report increases in new orders and backlogs, but a Milwaukee report emphasizes "we are seeing a reduction in the rate of acceleration." Output and employment continue to rise in most centers. Delivery dependability and product quality continue to worsen.

A large Chicago paper distributor says price increases are leveling off after boosts of 20 to 30 percent since decontrol. A few paper producers or jobbers are now offering limited additional "tonnages," but the general supply picture remains very tight. In this, as in other industries, there are continued complaints of "slow pay" even, and especially, in cases where ability to pay is not at issue.

Some major electric utilities have encountered financial problems in recent months, arising from cost overruns, forced shutdowns of nuclear plants, failure to get rate increases, and other regulatory difficulties associated with "consumerism." One utility has large bank borrowings at "two points over prime" which it has been unable to fund. Another announced the first layoffs in its history. Large utilities in Michigan and Illinois have announced cancellations of projects to go on stream two or three years hence, citing downward estimates of long-term demand. Power sales have been less than expected this year, but recent hot weather caused reductions in voltages and cutoffs of interruptibles.