Beige Book Report: Chicago
May 18, 1983
Summary
The economic picture is definitely brighter in the Seventh
District, but there is scant hope that employment and output will
soon regain a substantial portion of the ground lost in the steep
descent from the prosperous levels of 1978. Confidence has been at
least partially restored. Households are spending more freely,
especially on motor vehicles and other durables. Employment appears
to be rising gradually and factory hours have lengthened. Output
schedules for autos and trucks have been raised. The uptrend in
housing activity, both transactions and new construction, seems to
have substantial momentum, assuming interest rates do not rise.
Nonresidential construction remains weak with widespread evidence of
overbuilding. Except for a few items such as double trailers, demand
for producer goods remains very depressed. Depleted inventories of
steel and other materials and components are being cautiously
replenished. In the farm sector, adverse weather has delayed field
work, but income prospects have improved, mainly because of PIK. The
decline in District farmland value ended in the first quarter.
Caterpillar Strike
With the ending of the seven-month Caterpillar
strike on April 25, one of the District's largest manufacturers
resumed ordering steel, castings, and other supplies. Demand for
Caterpillar's earth-moving equipment remains weak, but its
inventories of finished goods and replacement parts had declined so
much that sales were being lost.
Company Restructuring
Business confidence has improved to the point
that "mere survival" is no longer the principal concern of hard-
pressed enterprises. But many prominent District companies are
emerging from the recession smaller, leaner, and less aggressive.
Breakeven points have been lowered by "drastic blood-lettings", with
deep cuts in supervisory and white-collar staff that will not be
restored, and closings of less efficient plants that will not be
reopened. Refinancing of debt will continue as opportunities
develop, but new debts will be incurred only reluctantly.
Producer Goods
Demand for most capital goods produced in the
District remains very slow. However, depressed lines are no longer
getting worse. Moreover, a pronounced pickup has occurred in orders
for double truck trailers permitted by new federal regulations.
Also, sales of some types of mining and construction equipment have
improved. The longer-term outlook for capital goods is clouded by
the lack of large programs in the planning stage in basic industries
such as steel, chemicals, electric power, and energy development.
Motor Vehicles
Auto dealers believe a solid, if moderate, rise in
demand for domestic cars and light trucks is underway. Easier credit
terms, improved product quality, and stronger consumer confidence
are cited. Auto demand is centered in full-sized, conventional cars,
which are generally in short supply. A large proportion of these
cars are built to order. Recreational vehicle sales also are much
improved. Auto output will not decline as much as usual in the third
quarter. Rapid, "rolling" model changeovers are planned for most
makes. Output of both cars and trucks will be up sharply in the
third quarter from last year, but still well below the high levels
of 1978.
Steel
The industry's reduced capacity to produce cold-rolled and
coated sheet is fully booked for the near future, mainly because of
increased vehicle production. Light structurals also have picked up.
Demand for plates and large structurals remains very weak.
Retail Sales
Some large retailers are pleased with recent increases
in sales, with appliances, furniture, consumer electronics, and some
types of clothing showing good gains. Inventories are on the low
side.
Housing
Transactions in existing homes are up sharply, particularly
in the Chicago area. Many purchasers are first-time home owners,
often two-income couples, who have been waiting for "affordable"
mortgages. Residential construction is up by about two-thirds in the
District from last year, but is less than half the level of early
1978. Prices of building materials have increased, but no
significant shortages are expected if starts do not exceed the
expected 1.5-1.6 million range.
Nonresidential Construction
Most types of nonresidential
construction in the District will be lower this year. Office space
is overbuilt, especially in downtown Chicago, and substantial
concessions are offered to attract tenants. No large new shopping
centers are planned, but work on small "strip" retail developments
and renovations are at a good pace. Utility construction and most
public works also will decline. However, highway and bridge repair
work will increase substantially.
Agriculture
Cold, wet weather has substantially delayed spring
field work, caused death losses and slow weight gains for livestock,
and disrupted production of fruits and vegetables. However,
projections of net farm income for this year have been raised.
Planting intentions suggest that corn acreage will be down 31
percent in District states, and soybean acreage down 4 percent.
Our April 1 survey of agricultural bankers indicates that the downturn in District farmland values ended in the first quarter, aided by the PIK program. Each of the District states noted at least a slight upturn. Potential land buyers who had been waiting for land prices to "bottom" have reappeared, and landowners wanting to sell are less inclined to accept low bids.