Beige Book Report: Chicago
May 20, 1970
In published statements and private conversations a deep mood of pessimism prevails in the Seventh District. Developments in Southeast Asia and the Middle East, racial strife, student unrest, high interest rates, the decline in the stock market, the squeeze on profits, the persistence of price inflation, rising unemployment, "unreasonable" labor demands, and strikes (especially the truckers' strikes) are likely to be mentioned in any discussion of recent trends and future prospects. Probably some decisions are being delayed pending clarification of current uncertainties. Whatever the "facts" may be, a correspondent writes, "Men's thoughts control their actions."
One of the problems in drawing a consensus by citing individual views on developments at the present time is that for every assertion an antithetical view could be offered. Some advocate price and wage controls; others regard such controls as anathema. Some demand that the Federal Reserve System ease credit, others insist that policy should have remained highly restrictive. Some worry over rising unemployment; others believe a "shakeout" is essential. Some expect a continuing decline in real activity through 1970; others are sure that the low point is past or near at hand. Some bankers think loan demand remains as strong as ever; others believe demand has eased.
The truckers' strikes and lockouts had a deep impact in the Seventh District in April and May, particularly in the Chicago area. Output of steel, autos, appliances, radio-TV, machinery and equipment, and many other goods has been slowed—some plants are closed completely. Some construction projects using structural steel have been virtually at a standstill. Some retailers have been unable to obtain certain goods. In the Chicago area, it is estimated that 125,000 workers are out of work currently because of the strikes, in addition to about 40,000 truck drivers.
Increasing uncertainties have entered the capital goods picture. Most statements of construction machinery producers indicate sales to distributors have been good, but one large producer reports inventories piling up at the dealer level. Among capital goods, machine tools have been hard hit by order declines. Machine tool output has not declined as much as orders, but some surplus capacity has developed. As a result of rainy weather, crop plantings have been delayed and farm machinery sales continue weak.
Construction declines are largely confined to single-family homes. Carpenters have become more readily available, but most building trades continue in short supply. Mortgage money is believed to have eased "dramatically" in the Detroit area.
Orders for major household appliances have improved in recent months. Demand for certain consumer residential goods, including motorcycles, golf carts, and bicycles is excellent—pressing capacity to the limit in some cases.
Although output schedules for autos indicate a strong revival in May and June, pessimism in automotive centers has been spreading. Perhaps this reflects the failure of retail sales to confirm expectations of improving demand.
Developments in the steel industry are so clouded by the truck strikes that generalizations on order trends are not possible, but a short-term increase in output is certain when the strikes are settled.
Job markets have eased in all major areas, but there has been no significant improvement in the supply of trainable younger workers. The easing of supply of college graduates has been dramatic. Summer jobs for undergraduates are scarcer than at any time in recent years. Many experienced executives are seeking jobs, partly as a result of the "fine combing" of white collar staffs. A student seeking summer work at a large automotive firm was asked, "Why do we want trainees when we're firing vice presidents?"
Complaints over "tight money" are widespread. Increased concern is expressed over the "liquidity squeeze," especially in small- and medium-sized businesses. Payments frequently are delayed, but there has been no significant rise in outright defaults or bankruptcies. Comments on the strength of loan demand vary from bank to bank. This may reflect varying degrees of emphasis on the means by which potential customers are discouraged.
A large bank states its "average cost of money" is 8-1/4 percent. Banks are not now able to raise CD money at ceiling rates. The common view of lenders and borrowers is that interest rates will either remain high or rise somewhat. However, there are indications that some corporate bond issues are being postponed and are awaiting more favorable conditions.
District analysts who emphasize the "money supply" expect the decline in activity to last at least through the third and probably the fourth quarter.
Of course, there are many who believe the decline in the stock market presages a much more severe drop in general business than is yet apparent.