Although the level of activity remains high in most sectors in the Seventh District, concern for the future has increased. Most observers of the general economy have adopted the standard forecast of little or no overall real growth in the next six to nine months, with some inclining to the view that a serious slump is quite possible. Record high interest rates, tight Federal budget policies, rapidly rising prices and wages, the severely depressed stock market, international monetary instability, poor crop prospects, and the probability of a long coal strike are among the major factors cited. Meanwhile, order backlogs for producer goods continue to rise; strikes have hampered output, especially of motor vehicles; consumer spending on various "discretionary" wants is sluggish; residential construction sinks deeper into its trough: and supplies of many scarce items have eased, although the situation is far from "normal."

Frequent reports indicate an easing of availability of purchased materials, components, and various finished goods. This is most clear in building materials (such as lumber, cement, and gypsum board), appliances and home furnishings, many nonferrous metals, petroleum products, and paper. In some cases, such as oil and paper, very large price increases (25 to 40 percent or more) have helped to balance the market. On the other hand, most capital goods producers continue to exert a major effort on expediting deliveries of items they purchase, and they complain of "huge" price increases demanded by suppliers.

Forecasts of steel shipments for 1974 have been raised to almost 110 million tons, close to the 1973 record. Order books are full for the rest of the year, and capacity operations are expected to continue into 1975. More foreign steel is available, but prices continue higher than for domestic products, and steel exports also are rising. Plates and structurals are "extremely tight." Most steel companies have only a month's supply of coking coal, and a coal strike next November, especially of a month or more duration, would seriously hurt steel output. Some coking coal has been purchased on the spot market recently at $80 per ton, compared to $10 per ton last year.

We are warned that price increases announced for many capital goods after decontrol will not show up significantly in shipments until August and September or later. Large price increases for equipment and motor vehicles and sharply higher construction costs are expected to slow purchases and new projects in the months ahead.

Some electric utilities have reduced capital spending to the extent that thousands of construction workers have been released from projects well underway. The auto companies also are canceling or deferring important capital spending projects. But most capital goods producers report no letup in demand. In fact, they are pushing their own expansion plans for farm, construction, and mining equipment, and heavy components. Some of these companies insist they would maintain these programs even if demand for their products slowed down, because cutbacks in expansion programs effected in 1969-70 proved, in retrospect, to be a mistake. Orders for heavy trucks continue very large, and a diesel engine producer is working on a three-shift, seven-day basis. Nevertheless, one expert predicts a drop in heavy truck sales in late 1974 and in 1975.

Announced negotiated wage increases appear to average well over 10 percent, with 12 percent or more very common. Some agreements are reached only after strikes of a month or more, and often after the rank-and-file have rejected the contract originally proposed by their bargaining committees. One "bellwether" contract, which covered 7,500 factory workers in Milwaukee, calls for 12.5 percent this year and 10 percent in the second and third years—plus additional COL adjustments, longer vacations, more holidays, voluntary overtime, dental insurance, and a more liberal retirement plan, including "30 and out." New contracts for public school teachers in Illinois call for a pay increase of 11 to 12 percent for the new term.

Except for construction, where under-capitalized builders have been paying up to 18 or 19 percent on construction loans, there has been no sharp rise in businesses or consumers in financial distress. Business receivables, in fact, are turning over more rapidly than last year, probably because prompt payment is required on goods in short supply.

Car dealers report short supplies of some types of large cars, but a glut of small cars. Many buyers are said to have traded-in the small cars they had purchased at premium prices last winter. Consumer demand for appliances, furniture, and airline travel has slowed recently, and the recovery in sales of recreational vehicles is said to have aborted.

Cool weather across the Midwest has increased concern over the size of the 1974 corn crop, already seriously affected by adverse growing conditions. Development of the crop continues to lag badly, and an early frost could cause large additional losses. As a result, livestock feeding activities—cattle, hogs, and poultry—are being curtailed sharply. Demand for feeder cattle is said to be "nonexistent."