May 17, 1972
The economic uptrend is continuing in the Seventh District, with most sectors participating. The improvement is expected to continue through 1972 and into 1973. Order backlogs are increasing, employment is rising, price inflation is at a slower pace than last year, inventories are generally low. Shipments of consumer durables are very strong, demand for some types of capital equipment has picked up markedly, and bank loans, especially business loans, have increased substantially. Initial concern over the announcement of the Vietnam blockade (May 8) appears to have died down with no significant impact on spending decisions by consumers, businessmen, or lenders.
Widespread irritation exists in business circles concerning the actions and pronouncements of the Price Commission. In particular, the Commission's productivity and profit margin standards for judging proposed price increases are criticized as arbitrary and inequitable. Nevertheless, a large number of businessmen believe that price and wage controls, overall, have been a desirable stabilizing influence. Compliance is generally very good, perhaps reflecting the fact that most markets remain highly competitive. The momentum of the business uptrend probably will overcome short-run uncertainties related to controls, but longer-term doubts remain.
Some firms have not implemented authorized price increases, and some prices have been cut to improve competitive positions, even though product sales have increased sharply. Examples are household appliances, motor trucks, color TV sets, and some petroleum products.
Factory shipments of virtually all major consumer durables-autos, appliances, furniture, and TV sets-continue far above last year. Demand for recreational vehicles and equipment is taxing capacity for such products as motor homes, bicycles, motorcycles, and camping equipment. There are no signs of a weakening in consumer demand for durables. Inventories are judged to be either "on the thin side," or, at least, not out of line with sales prospects.
In March and April, demand for various types of capital goods was above the year-earlier level by a wide margin. Examples include motor trucks and trailers, materials handling equipment, hydraulic excavators, industrial tractors, cement mixers, electric motors, and mechanical and electrical components and controls. Sales of farm machinery are extremely good. Increases in these sales generally have exceeded expectations, substantially in some cases. Exceptions to the pronounced improvement in capital goods include railroad equipment, heavy overhead cranes, large machine tools, and rolling mill equipment. Increases in outlays for modernization, replacement, and pollution control (rather than basic expansion) dominate the picture. The European market for U. S. capital goods has strengthened more than most experts had predicted. The weakest foreign markets are Australia and Japan.
The strike of an Indiana plant that supplies about half of the heavy truck engines was ended in late April after 56 days. Full production was achieved in only three days. Sales of heavy trucks, 20 percent above last year so far in 1972, are now expected to remain vigorous through mid-1973.
Labor disputes are relatively unimportant at the present time. However, a strike of elevator maintenance men in the Chicago area is now delaying construction of large commercial buildings.
Local experts have raised their projections of U. S. housing starts for 1972 to 2.1 million or more. Real estate transactions in the District are at a good pace and higher than expected. Apartment building may be off this year in the Chicago Area because of rising vacancies in luxury type apartments, but production of single-family homes may equal or exceed last year.
More firms are hiring again, but on a selective basis. Demand for executive and administrative personnel has increased further and on a broader front. Experienced engineers, metal-workers, and construction workers are sought, and shortages may become significant in the year. But business firms are not hiring the "warm bodies" that were employed in the late 1960s, at least to the extent they are free to exercise judgment.
Sales to farmers of agricultural equipment, fertilizer, and other production needs have been excellent. However, wet weather across the Midwest has delayed corn plantings to the extent that additional acreage probably will be shifted to soybeans. Wholesale meat prices continue to strengthen, and pressure is being exerted on retail meat prices. Speculators in the futures markets apparently believe the fall decline in hog prices will be relatively small. Farm land values have continued to rise in the Seventh District. In part, this reflects demand for residential farms and for recreational sites.
Demand for all major types of bank loans has strengthened substantially in recent months. One large Chicago bank reports demand for business loans to be at the highest rate in its history. Life insurance companies are accommodating a rise in net policy loan disbursements because of a drop in repayments. Activity in business mergers has accelerated, but there appears to be more desire to restrict acquisitions to enterprises in lines related to existing operations than was the case in the merger surge of the late 1960s.