February 12, 1975
The general business decline in the Seventh District continues with no reversal in sight. Virtually all industries, with producers of heavy capital goods still an exception, are laying off workers, cutting production schedules, and reducing inventories. Pessimism among consumers, businessmen, and lenders is deep and almost universal. A general realization exists that this decline is far more pervasive than earlier postwar downturns. Mortgage funds are now more available, but there is no indication, as yet, of a revival in residential construction.
Large order backlogs are maintaining output of equipment for coal mining, oil well drilling, rail transport, Great Lakes shipping (mainly large ore boats), steel mills, agriculture (at least heavy equipment), and chemical processing. On the other hand, output of some equipment has been reduced sharply, including lighter farm and construction equipment and heavy trucks. These sectors had been strong until the fourth quarter. Orders for many types of equipment components (e.g., mechanical controls, small motors, axles, and transmissions), which had presented bottlenecks through much of 1973 and 1974, have dropped very sharply in recent months.
Shortages of certain types of bearings and hydraulic and electrical components continue, and steel plates and structurals are still on allocation, but such reports are much less frequent. Prices of some industrial supplies, including specialty steels and fuel have softened—especially in the brokered markets. Overall price inflation apparently continues, however. A large producer of farm equipment says the average prices it pays for supplies and components rose significantly in December and January, although at a slower pace. Average prices paid by this firm in early February were one-third higher than a year earlier. Net new orders for steel have declined substantially, with cancellations playing a larger role. Demand for packaging materials has dropped sharply, partly as a result of inventory reductions.
Although oil and gas exploration continues at a pace limited only by capacity, oil firms say that they are scaling down future plans. The threat of an excess profits tax is said to be a factor, although demand for oil products has been weaker than expected. Prices of gasoline and some other petroleum products have been under downward pressure as a result of sizable inventories.
Electric and telephone utilities report demand to be below expectations. New installations of telephone and message volume have declined, a new phenomenon since World War II. Most telephone companies have laid off workers. One company has relied on attrition, but says layoffs are likely.
The job market continues to deteriorate. New claims for unemployment compensation have been running about double last year's increased level throughout the District. Unfilled requisitions at the Federal Reserve Bank are at the lowest level in memory of some old timers. Newspapers carry frequent stories of white collar workers, including executive and technical types, who are unemployed for the first time in their working lives with no early prospects for employment. Chrysler's SUB fund for nonunion workers is said to have been exhausted. In the Chicago area, the truck drivers union has ordered a maximum 50-hour week and a 10-hour day to spread available work, involving a seldom-used contract clause. Relatively few jobs are open and then mainly for such specialties as chemical engineers, draftsmen, accountants, commission salesmen, and telephone solicitors. Despite weak job markets, low-paid, menial, and dirty jobs are hard to fill. Moreover, most labor groups negotiating new contracts are militant in demanding increases in compensation of 10-12 percent or more.
Reports indicate a dropoff in savings inflows to S&Ls in late January. Nevertheless, most major associations have resumed lending to non-customers, with rates cut to 9 percent. There seems to be no surplus of housing in the District. Net new construction probably is well below household formation. Rent hikes on "better units" in the Chicago area are expected to average 10-15 percent on leases renewed this year.
Consumers are buying very cautiously despite price reductions and heavy promotions. Retailers appear to be closing marginal outlets more frequently, even in modern shopping centers. Rebates on some car models have not brought a boom in new car sales. Aside from the recession, car buyers are said to be deterred by price increases (about $1,000 per car), by the presence of the new features required to promote safety and control pollution, and by uncertainties as to the functioning of catalytic converters and the availability of lead-free gas.