September 10, 1975
Signs of improvement in business activity in the Seventh District are becoming more evident. Consumer confidence is strengthening and most merchants are less gloomy. Demand for workers has increased slightly. Steel orders have increased, only partly because of the price rise scheduled for October 1. Most firms are completing inventory liquidation programs, notably for steel, but also for other items. Overall, the producer goods industries are still slipping, but mining equipment and pollution control equipment remain very strong and order cancellations in other lines are much less frequent. Increases in industrial prices are becoming more significant again. Single-family home building activity has improved significantly, especially in the Chicago area, but remains far below earlier peaks. Recent rains have stabilized the deteriorating crop picture in Iowa and crops in District states east of the Mississippi look excellent, even better than reported earlier.
A survey of consumer confidence for the Chicago area showed a clear improvement in the third quarter from the low ebb reached early in the year. Most retailers have noted some improvement in sales since July, with a good volume of sales of back-to-school items. Sales of big ticket items involving use of credit are still sluggish. Auto sales may have been aided by a desire to avoid price increases on 1976 models.
Various evidence, including help-wanted ad volume, suggests a modest increase in demand for workers in the past month or so. Steel companies have recalled some workers. About 12 percent of the auto workers are still on indefinite layoff. While this is down from 39 percent last February, no further improvement is likely in the short run.
Unemployment was estimated at 9.6 percent in August in the Chicago area, 11.6 percent in the city, and 40 percent among Black youths. While estimates of local unemployment should be regarded skeptically, there is little question that the Chicago area's job market is weaker than the nation's, in contrast to historical experience. The city continues to lose employment opportunities as such important industries as printing firms shift operations to other areas, especially the South. An expert estimates that 19 percent of the population of the city of Chicago are on welfare, compared to 9 percent five years ago.
Orders have strengthened for lighter steel products. July appears to have marked the low point, seasonally adjusted. Some orders have been moved up because of the price increases announced for October 1, but inventories of vehicle and appliance producers and various other users are believed to be quite lean. One large Chicago area steel company with a strong competitive position is operating at near capacity level. This firm's output was threatened by the coal strike in West Virginia, which appears to have ended this week, just in time to prevent cutbacks in operations.
The drive to reduce inventories has lost momentum, although many firms still view their holdings as excessive. Some firms have slowed inventory reduction programs because of increased demand for their products, but announced or expected price increases and possible interruptions of supplies also are factors.
Certain District producers of mining equipment and heavy construction equipment related to mining or resource development have maintained output at capacity levels and are pushing plans to expand capacity. Backlogs for large electric mining shovels and heavy overhead cranes stretch out a year or more. A leading producer of diesel engines has recalled workers because of increased demand for heavy highway trucks, but this may reflect desires of dealers to restock in anticipation of stronger final sales. Sales of tractors and other farm equipment, especially combines, have improved from reduced levels earlier in the year, bolstered by prospects for improved farm income resulting from higher prices for crops and livestock. Generally, however, capital goods producers have been cutting output as backlogs have eroded.
Construction activity continues at depressed levels. Permits for single-family homes in the Chicago area have been above last year in recent months, but well below earlier years. There is little hope for apartments or commercial construction. A builder recently canceled a 600-unit condominium project in an urban renewal area near the Chicago Loop as "too risky." Sales of pre-owned homes have increased, but prices averaged 9 percent higher than a year ago, only slightly less than increases reported for the two previous years. Prices of homes are expected to rise almost as much in the year ahead. Aside from higher costs of labor, materials and financing, rising home prices are also blamed on restrictive building codes and stiffer zoning restrictions.
Much needed rains in recent weeks arrested deteriorating crop conditions in Iowa and solidified prospects for record harvests in Illinois. Growing conditions in Indiana, Michigan, and Wisconsin also have been excellent. The current state of crop development much reduces the possibility of damage from an early frost such as occurred in 1974.