September 13, 1972
The view that a vigorous business uptrend will continue through mid- 1973, with possibly slower growth in the second half of the year, is becoming increasingly common in the Seventh District. Employment continues to edge up, and unemployment is becoming less burdensome, except for some centers in Michigan. While some manufacturers are not satisfied with the degree of improvement in their orders, we do not know of any sectors where demand is weakening. (Apartment building in the Chicago area may be an exception.) Retail sales appear strong, both hard and soft goods, but savings inflows to financial institutions remain at a high level.
Help-wanted ad volume in major newspapers has increased substantially this year but remains well below the levels of the late 1960's. Some employers find the supply of quality workers to be inadequate. Night shifts are hard to staff, despite the offer of premium pay. Many employers are hard pressed to satisfy standards for "affirmative action" in hiring more women and minority group people in the face of company policies to hold down total employment. Companywide ceilings on total employment, particularly for "overhead" types, are common. Adding employees requires more "red tape" than in other upswings. Aside from arbitrary ceilings, requirements for new hirings include: (1) approval at a higher level of management, (2) written justifications, and (3) more frequent reports on the employment status of individual departments. Partly because of price controls, manufacturers are prepared to let delivery times lengthen rather than incur the costs associated with additional hirings of recruits of doubtful quality.
Obviously, the tight policy on new hires is a major factor favoring large increases in productivity. These conditions presumably will change if the general upswing continues at the rate anticipated.
The prospective rise in the minimum wage would not affect starting pay in most District industries, except for retailing. (Not all retailers would be affected.) However, a substantial rise in the minimum wage is expected to "ratchet" pay scales for relatively low-pay jobs that are above the minimum.
Gas, electric, and telephone utilities report strengthened demand for their services. There is little threat of electric power shortages in this region, in the short run, but prospective supplies of fuel oil and gas for heat appear to be inadequate. A large Michigan utility has warned "interruptible" industrial customers that they will receive no gas in the fourth quarter of 1972, and possibly not in the first quarter of 1973.
Attitudes toward price and wage controls vary greatly by industry. Truckers claim that they are in a wage-price squeeze. Oil firms warn of "incipient" shortages of both gasoline and home-heating oils, partly because of price controls. At the other extreme, the chief executive of a large Chicago-based airline thinks that the controls were an absolute good, and have made it "possible for his firm to move from large deficits to a modest profit". Incidentally, domestic airline traffic is now well ahead of last year, after a pause in May. A fairly steady annual growth of 9 to 10 percent in passenger seat miles is foreseen for the rest of the decade.
Most producers of capital equipment report higher sales and orders and good prospects for the future. Outlays for pollution control have top priority and sometimes displace other items in capital spending budgets. Some District firms are negotiating sizable deals with the USSR. Russians are among the large attendance at the ten- day international machine tool show that opened in Chicago on September 5. (Officials believe this show to be the largest industrial exposition ever held in the United States.) Foreign demand for a variety of types of producer equipment has improved, with the United Kingdom the only soft spot among major nations.
Among the sectors that are not participating in the rise in capital spending are petroleum, the railroads, and industrial construction. There is little likelihood of a pickup in these sectors in the remainder of 1972 or in early 1973.
Apartment building has slowed significantly in the Chicago and Indianapolis areas in 1972. (More apartment buildings would be built in Chicago suburbs if zoning restrictions were relaxed.) In Detroit and Milwaukee, on the other hand, apartment building has strengthened relative to single-family homes in 1972. Overall, residential construction is strong. Where permits have declined, it is lack of effective demand rather than credit stringencies.