June 11, 1975
Economic conditions in the Seventh District are still deteriorating, and prospects appear less favorable, overall, than for the nation for the remainder of the year. This region's important capital goods industries report sharply reduced orders, while demand for consumer durables, also important here, has not recovered significantly. Most manufacturers are cutting inventories, and markets for most materials, components, and finished goods are highly competitive. Transportation volume remains very depressed. No significant pickup is discernible in residential construction activity, but sales of existing units have improved in recent weeks. Employment is probably still declining in the district, with layoffs continuing to be heavy while new hiring remains at a low level. Retailers appear pleased with a modest pickup in sales of seasonal merchandise in recent weeks. Prospects appear excellent for agricultural crops, with plantings completed in ample time.
Many firms have deferred or stretched out capital expenditure programs because of idle capacity, reduced profits, and reduced estimates of future growth. Most producers of capital goods continue to report cancellations and rescheduling of orders. Cancellations would be greater for some items, for example, railroad equipment, if such steps were not too costly. The market for trucks, trailers, and small construction equipment is very depressed, and demand for farm equipment has weakened. Some oil exploration projects have been curtailed, with the new tax law cited as the reason. Demand remains very strong for capital goods for water control and sewerage facilities, as well as for mining and ore processing (including coal, iron, and copper).
Generalized inventory cutting since late last year has created some gaps, with shortages of particular products necessitating increased orders and production. This has occurred in autos, appliances, and recreational equipment. Inventories, generally, are still considered excessive, however. Freight transportation by rail, truck, air, and water has been running 15 to 20 percent below last year, the largest decline since World War II. Much equipment is idle and not wearing out, thereby reducing demand for both new equipment and replacement parts.
Residential construction is not leading the district out of the recession, as in the past, and time is running out for this year. Housing permits in the Chicago area for four months were down 27 percent from last year and down more than 60 percent from 1973. The mortgage on a new 43-story office building on La Salle Street has been foreclosed. Many other commercial and residential projects are in trouble but are not being foreclosed because lenders see no advantage in such a course. Condominiums have been especially hard hit. On the favorable side, sales of houses have picked up in recent weeks, and an act to extend the 9.5 percent usury ceiling in Illinois has been passed by the legislature.
Some manufacturers have recalled workers, but total layoffs continue at a high level. Voluntary separations are sharply reduced, and demand for additional workers, including trainees, is very low. New claims for unemployment compensation in May were more than double last year in the district, except for Michigan, where claims were very high last year. Unemployment in the building trades is said to be 30 percent or more in the Chicago area, but unions have obtained increases of 5 to 8 percent after strikes or threats of strikes. (Total compensation of bricklayers is now $11.63 per hour.) The city of Detroit has laid off workers, including police, and Milwaukee may be forced to follow suit. Many college and high school graduates have been unable to find jobs, and temporary summer jobs are hard to find.
The largest producer of color TV sets and a major producer of furniture report that consumer demand has picked up in recent weeks, but they imply that they are outpacing their competitors. Sales of boats, recreational vehicles, and appliances (except for chest freezers) remain very poor. Major retailers of general merchandise saw some improvement in sales of apparel and other seasonal merchandise in recent weeks, with a boost from favorable weather. Their inventories are said to be in good shape. Competition has forced a 35-store Chicago area food store chain into bankruptcy, and a national food store chain has been closing a majority of its stores in the Chicago area.
Crop plantings proceeded very rapidly in recent weeks. By June 2, virtually all of the corn and 85 percent of the soybeans in the district had been planted. In Iowa, where rains had delayed operations, farmers were able to plant half of the state's corn in one week—many of them using larger and faster equipment than in the past. Farmers' purchases of fertilizer and equipment have been below expectations this year, reflecting cautious attitudes. Dealers are said to be pushing equipment sales with discounts and more liberal credit terms.