The air of uncertainty emphasized in the last Red Book forecast is still widely prevalent in the Seventh District, but signs are accumulating that business and financial executives believe price-and-wage guideline decisions will be flexible and reasonable. The major consumer durables industries continue as the strongest sectors, but some producer goods are showing increased vigor. Inventories continue under tight control. Regional unemployment estimates are generally more favorable, but the reliability of the estimates are in doubt in some cases. Business firms are moderately optimistic in projecting results for next year. Credit is available in all markets, but demand for business loans remains slow.

The period since mid-August has been characterized by softening in prices of finished producer equipment, parts and components, and nonferrous metals. The freeze helped to accelerate the impact of market forces. As a result of earlier increases, some prices contained a good deal of "water." But many executives believe that cost. increases justify larger price increases than those that have been, or will be, allowed. They believe that labor contracts negotiated before and during the freeze will be allowed to stand, and that "catch-up" increases will be granted to unions in related fields that are now entering negotiations. There are some complaints about the limitation of dividend increases to 4 per cent in cases where increases had been planned to aid sales of new stock issues.

Some labor leaders appear to be concerned that their
rank-and-file are not sufficiently militant in support of union positions relating to the new economic policy. Educational efforts have been expanded as a corrective measure.

In the capital goods sector, demand for heavy trucks has increased significantly in recent months. Increased sales of farm, construction, and materials-handling equipment are expected in 1972. Orders for parts and components have improved slightly in the past month or two. Producers of railroad equipment believe additional orders are held in abeyance, awaiting certainty on the state of the investment tax credit. Inventories of capital goods producers are relatively low.

The extremely high level of sales of passenger cars (at least until the final third of November) has puzzled auto producers. Dealer profit margins have been favorable, so the price freeze is not the whole story. The dock strike has been the major factor dampening sales of imported cars, but appreciation of foreign currencies, upward cost pressures abroad, and the surcharge are all playing a role.

Steel orders are still disappointing, overall, but the picture varies substantially from firm-to-firm and plant-to-plant. One Chicago-area steel producer, with 90 per cent of its normal work force on the job, was surprised at the number of workers who did not respond to recalls from layoff. Steel operations are expected to be back to "normal" early next year for the entire industry, and 1972 as a whole is expected to see an 8 per cent rise in shipments from 1971.

Further evidence has developed in the past month to suggest that the housing market has passed its peak, at least temporarily. In the Chicago area, vacancy rates have increased, and the issuance of new permits has slowed. The situation varies among sections within the area, however, and the level of total residential construction remains very high.

Some very large commercial construction projects have been activated recently in the Chicago area. Office structures are included in the new announcements, despite the large volume of space coming available in the immediate future and in the next two years. Work on some structures is said to have slowed down. Speculative builders are less prominent, with most new projects supported by large enterprises that will occupy much of the space.

Return to work orders last week to striking dock and grain elevator workers are credited with boosting the price of corn, especially the cash price, because foreign demand can be accommodated. Pressures from the farm sector may have encouraged the return to work. Comments of the Secretary of Agriculture nominee, that steps will be taken to boost corn prices, also helped.

Commercial banks report business loan demand slow, and weaker than expected. Purchasers of certificates of deposit are reluctant to take maturities beyond 30 days, because of uncertainties over interest rate trends. The potential supply of new municipal issues remains very large. Life insurance companies have ample funds to invest because of both reduced demand for policy loans and increased prepayments of mortgages as homes are sold. Life companies favor large mortgages—industrial, commercial, and multifamily residential—over alternative investments.