The economic situation in the Seventh District has weakened in the past month. Shortages of purchased materials and supplies are much less significant, and in some cases the change has been dramatic. A concerted effort is being made by many firms to reduce inventories or, at least, restrict further expansion. Consumer demand for discretionary items has slowed, especially for appliances and furniture. Some softness has been noted in certain, but by no means all, capital goods. Housing activity remains at "crisis levels," and a distinct cutback is underway in commercial and public construction. Price inflation in the nonfarm sector has slowed, at least for raw materials. Announced wage settlements cluster in the area of 12 percent per year. Corn, soybeans, fruits, and vegetables have been hard hit by early frosts. Attitudes, generally, have become much more pessimistic, and many firms have "contingency" plans to be effected if prospects deteriorate further.

In the manufacturing sector, the most significant development has been the easing of shortages. Improvement is noted in fuel, paper, industrial chemicals, most nonferrous metals, and of course, residential building materials. Purchasing departments have been deferring deliveries in some cases. Some price softness is reported in fuel, chemicals, and fibers.

Very high interest rates and limited supplies of funds, coupled with reduced demand for some finished goods and ready availability of purchased supplies, have created pressures to reduce inventories, even though inventories are not generally excessive, relative to current activity.

Despite easing in some sectors, supply constraints are still severe in many areas, particularly those related to capital goods. Iron ore, coke, structural steel, steel plates, aluminum, nickel, diesel engines, electric motors, castings, forgings, bearings, hydraulic components, hoists, axles, transmissions, and fasteners remain very tight-many say "as bad as ever."

Consumer purchases of major appliances and furniture dropped off significantly in recent months, partly because of the decline in residential building. Sales of 1975 car models have been below expectations, with sharply higher prices a factor. Airline travel has only equaled year-earlier levels, also with sharply higher prices. Consumers appear to be conserving their resources for necessities and contractual obligations.

Fuel supplies, including natural gas, appear to be comfortable in this District. Major oil companies have followed independents in cutting gasoline prices. Electric utilities say their "send out" has been below forecasted levels.

Current high prices for materials in ample supply are soft and could be vulnerable to significant declines, such as those that have already occurred in the spot commodity market. Finished goods prices remain under upward pressures because of large increases in wages and other costs.

Orders for capital goods have slowed in some categories, mainly because of postponements or cancellations by public utilities and auto producers. Demand for equipment for mining, heavy construction, transportation (highway, rail, and water), chemical processing, oil exploration, pollution control, steel production, and for manufacture of machinery remains very strong.

Many smaller commercial and industrial construction projects have been postponed or canceled because of financing problems. Some very large residential developments have been abandoned, with no plans for revival.

Steel output is expected to be near capacity throughout 1975, despite an expected 10 percent drop in shipments. Mill inventories of steel are badly depleted and must be rebuilt, and imports are expected to rise. Although steel order books are full, overall, auto industry demand is off, and appliance manufacturers have been canceling, not merely postponing, orders.

Frosts, two to three weeks ahead of normal, have dealt a severe blow to corn, soybean, fruit, and vegetable crops-especially in Illinois and Wisconsin. Prices of canned goods are likely to rise substantially further. Early frosts came on top of heavy spring rains followed by serious drought. Uncertainties facing crop and livestock producers have been increased by the recent government moves to cut exports. High feed prices are leading to a sharp reduction in production of hogs and poultry.