April 6, 1971
Views of informed persons in the seventh district continue to show a wide variation as to the strength of the uptrend likely in the remainder of 1971. Forecasts of GNP for 1971 range from $1,040 billion to $1,060 billion. Unemployment continues to rise. Labor disputes are frequent and difficult to negotiate. A flurry of price advances were announced in March, perhaps reflecting expectations that controls may be in prospect. The availability of funds continues to improve, but lenders are concerned with the quality of credit applicants.
As a result of deterioration in Madison, Wisconsin, and Des Moines, Iowa (both state capitals) there are, currently, no relatively strong labor markets left in the seventh district. Unemployment in most centers is the highest in seven or eight years, with rates ranging from 4 to well over 10 percent. The mayor of Detroit believes his city's unemployment rate is 14 percent, with an "inner city" rate of 25 percent. In the Chicago area (4.2 percent unemployed in February) employers report job applicants double last year's level, while job openings are limited to hard-to-fill positions. Many job applicants are "over-qualified" in terms of previous salaries. Plant closings, cost-cutting programs, returning veterans, and wives desiring to supplement family income continue to swell the number of job seekers. In no area is there evidence of a significant employment pickup except in home building and other seasonal activities.
Price advances announced in March-many to be effective in the future-were extremely numerous, in contrast to a lull in January and February. A wide variety of products are involved, including chemicals, building materials, containers, and electrical components. The increased frequency of price announcements was so dramatic as to suggest that some businesses are attempting to establish a higher base for possible price controls.
The important district capital goods industries show little promise for the near future. Demand for construction machinery is relatively favorable. Demand for equipment related to pollution control is vigorous. But machine tool orders remain dismal, and demand for farm machinery is very weak. One large producer of farm implements made no attempt to increase output to offset a recent three-week strike. There are persistent rumors that two historically-important producers of farm equipment intend to abandon the field.
Opinions vary substantially as to the prospective strength of demand for domestic new cars. It now appears that the influx of imports will not be stemmed by the new domestic subcompacts. The Japanese car producers are only beginning to tap potential U. S. markets. Meanwhile, quality questions, and availability of foreign-made components, may limit sales of domestic subcompacts.
The volume of real estate transactions has increased sharply as credit availability has improved. Prices of used houses have increased recently after weakening in 1970. Project builders again are pushing developments that had shut down last year. Some new large-scale recreational area projects are being activated. New plans for manufacturing and commercial construction, however, are at a low ebb.
Commercial banks and S&Ls are being flooded with funds—"More than we can use." Business loan demand is said to have weakened again in March.
Repayments of policy loans at life insurance companies have increased sharply. Apparently, many of these were business loans, or loans used to purchase short-term securities when market rates were above the policy loan contract rate.
There is general expectation that rates on long-term corporates will tumble in the next few months. Two banks in the Chicago suburbs cut rates paid on savings recently, but no action has been taken by the large banks.