October 13, 1971
Public responses in this District to last week's Phase II announcements were similar to those noted following the NEP speech in August. Executives of large businesses and financial institutions lauded the proposals and pledged cooperation. Some prominent academicians, especially of the "Chicago School," were sharply critical. Union leaders condemned any program that did not control profits and interest rates.
A number of spokesmen criticize the "vagueness" of the Phase II proposals and question the efficacy of controls administered by part-time boards without elaborate enforcement machinery. Some small firms appear to believe they can evade the controls with impunity. Large firms have almost cut off publicity on price developments and other matters that may come under the perusal of controllers. Compliance by large firms, moreover, may be more apparent than real. Reports from Detroit indicate that the freeze has aided the disposal of 1971 models at better-than-expected prices and that popular new models are being "loaded" with high-profit margin "extras." Some direct opposition is also apparent. The head of the U.A.W. announced (October 8) that he would refuse to serve on the Pay Board, and he complained of "conflicting interpretations" by Administration spokesmen.
There is some evidence that business decisions are being delayed, pending fuller understanding of the control program. Lifting of the absolute freeze in November will be the signal for attempts to activate dormant decisions to increase wages, prices, and dividends. An air of uncertainty exists that conceivably could delay the economic recovery. Although not voiced publicly, there is widespread distrust of direct controls by businessmen and lenders-based in some cases on recollections of the workings of such controls during and after World War II.
Retail sales in this District apparently were strong in September, especially autos and household durables. Orders for producer equipment remain at a low level, but there has been a rise in design-stage activity for some types of long-lead time machinery. An important producer of diesel engines is expanding capacity to provide for an expected upsurge in demand some time in 1972 to avoid allocations required in the late 1960's.
Some evidence points to a rise in the demand for workers, especially those with special skills. But layoffs are still about offsetting hirings. Overall employment in this District has changed little in recent months, after allowance for seasonal variation. Various municipalities have been forced to curtail programs, including education, because of financial stringencies. Among the domestic changes in the employment picture in the past two years has been the shift in the supply of teachers from shortages to substantial surpluses.
Unemployment rates in the District are generally below the national average, except for auto industry areas and some centers producing steel and producer equipment. Estimates of both employment and unemployment, however, have been below those of last year in recent reports on local labor markets, indicating labor force withdrawals. Unused labor resources in these areas probably are not adequately represented by unemployment estimates.
The residential construction picture remains vigorous here, especially in the Chicago area. Financing, including construction loans, is readily available. The market for luxury-type apartments has weakened, but important new projects are being announced. Meanwhile, space in new office buildings in downtown Chicago, completed or nearing completion, is in excess supply. Prospects for new commercial projects are poor throughout the District. Starts on manufacturing buildings are at an extremely low level with no prospect for early improvement. Important municipal projects are being postponed for lack of funds, but some Federal projects have been activated.
Sales of life insurance policies have strengthened substantially in recent months, possibly reflecting an upgrading of the sales force. Disbursements on life insurance policy loans have increased moderately, following a sharp decline earlier in the year. Life insurance companies continue to be cautious in making new investment commitments.
District banks are avoiding investments in long-term municipals. Business loan demand is still relatively weak. Partly for this reason, banks are not seeking CD money aggressively, despite a slower inflow of savings in recent months.