The softening in business activity in the Seventh District, reported in earlier months, has broadened and deepened. New orders have slowed almost universally, even in the case of heavy equipment producers, most of whom are still operating at capacity. Except for coal and steel—closely related products—concern over shortages has given way, dramatically, to attempts to reduce inventories. Many firms, large and small, are pressing cost-cutting programs, which usually involve reductions in staff. Publicity over layoffs and rising unemployment are adversely affecting consumer psychology and, therefore, sales of both big-ticket consumer goods and houses. Although savings inflows have improved, the depression in the housing industry continues to worsen. Harvesting of crops is progressing rapidly, but yields are far below the levels anticipated early in the year.

A majority of the purchasing managers in Chicago reported significant reductions in activity starting in September. (A similar shift from strength to softness occurred in December 1969.) The list of items in short supply has dwindled almost to zero. Steel is the only basic material still said to be in short supply. But even in the case of steel, availability has improved and remaining stringencies are probably related to fears that a long coal strike may severely restrict supplies. Long lead times on such items as bearings, power transmission equipment, fasteners, and electric motors have shortened significantly. Supplies of heavy castings, forgings, and steel plates are still below requirements. In many areas, imports are again more available. Frequently, it is said that "salesmen are calling for a change."

Inventory reduction efforts have been spurred by a combination of increased availability of goods, reduced demand for products, high interest costs, and limited financial resources. Reduced output schedules and layoffs of production workers have been announced by many manufacturers—especially in autos, appliances, television, furniture, bicycles, and electrical components. Many of these items were back ordered only a few months ago. Publicly or privately, executives of many manufacturing firms say the fall-off in new business was abrupt. Frequently, the turn came in mid-September.

A number of electric utility companies are in serious financial trouble and have embarked on austerity programs and cutbacks in capital spending programs, even though service capabilities may be affected adversely in the future. Also, some large firms, which continue to report substantial increases in sales and appear financially strong, are pushing cost-cutting efforts because profit margins are unsatisfactory.

Pressures to reduce staff are beginning to resemble the experience of 1970, with white-collar employees sometimes under a "reign of terror." Employment is reduced by attrition, cancellations of unfilled requisitions, forced early retirements, and outright firings.

Most producers of capital equipment have noted a slowing in new orders recently, and they have been able to reduce swollen backlogs; however, stretch-outs and cancellations of orders also have become more common. Materials handling equipment, pollution control equipment, and heavy trucks have been affected by these trends, although orders on hand should keep output high into early 1975.

Many equipment producers have been able to overcome bottlenecks that had resulted in badly unbalanced inventories, including finished goods lacking one or more parts. Solid strength in capital goods continues for machine tools and for equipment for chemical processing, mining, oil and gas exploration, heavy construction, railroads, and agriculture. Some producers of these items, however, are becoming apprehensive concerning demand after the first quarter of 1975.

Retail sales of autos and most large household goods have been running well below a year ago (and below expectations). As a result, production schedules have been reduced sharply in a series of steps. Producers of these goods frequently complain that tight credit has been a factor in reduced sales, both at the dealer and consumer levels.

Despite prospects for improved savings inflows, there is little hope for a revival in residential construction before the second quarter of 1975. Lenders are making few new commitments, either for construction loans or for mortgages. This reflects a desire to repay debt and rebuild liquidity but also a concern that any improvement in supplies of funds may be temporary. The mobile home industry also remains severely depressed. Some large builders of conventional housing have abandoned big projects in the region. Various mobile home producers have closed plants or have gone out of business.

If the coal strike lasts more than two or three weeks, steel output necessarily would be reduced. The auto companies also say their operations would be affected before long. Utilities in this area are said to be fairly comfortable, with 70 to 100 days' coal on hand. Heating oil inventories are said to be adequate, unless a coal strike lasts more than five to six weeks.