April 11, 1979
The truck strike has taken the economic spotlight in the Seventh District, even though Chicago area truckers have not been directly involved. Many companies attempted to prepare for the April 1 strike deadline by putting in additional supplies, and this augmented already heavy demands for materials and components. The main impact of the strike, so far, has been on output of motor vehicles. Orders for producer equipment continue to outrun rising shipments. Demand for trained and trainable workers remains vigorous. Consumer purchases have been dampened by cold weather and the late Easter. Real estate transactions picked up sharply in March from depressed levels, but home building is expected to lag year ago by a wide margin. Farmers are relatively prosperous, particularly livestock farmers. Continued stringencies in beef supplies will be offset, in part, by a major expansion now underway in pork and poultry production.
Prior to the truck strike, truck lines were operating all out: (1) to make up for the bad winter, (2) to accommodate rising activity, and (3) to carry goods ordered as a hedge against the strike. Auto companies began closing assembly plants soon after the strike. A strike of a few weeks would halt the entire motor vehicle industry. Operations are geared to a steady flow of components to the final assembly process.
Outside of motor vehicles the impact of the truck strike has been "spotty." Steel has continued to move to the South and West from Chicago, but not to the East. Smaller unionized trucklines, company fleets, independents, lines with Teamster contracts expiring at other dates, and most Chicago area lines have continued to operate. LTTL (less than truckload lots) shipments are being avoided by operating truckers. Various devices are being used to keep operations going, including rented trucks. The railroads are of little help because they have been operating at virtual capacity determined by availability of equipment and the condition of trackage.
The three-year pact rejected by the Teamsters would increase compensation more than 30 percent. Pending negotiations in other industries have come to a standstill awaiting a settlement by the Teamsters. Pay is already high with many young men making $20,000 or more annually, not counting fringes. The main issues are said to be a demand for two COLA adjustments per year, rather than one, and an increase from $60 to $90 per week in the pension-welfare package. The adequacy of existing pension reserves has been jeopardized by unfortunate investment policies.
Negotiators are also watching the UAL strike. The Machinists rejected a three-year pact worth 32 percent in wages and 40 percent in total compensation. One issue is a demand for an unlimited COLA.
Informed observers expect a truck strike agreement within a week or so, before the general supply situation deteriorates seriously, because owners are more unified and strikers less militant than in the past. But this is by no means certain. Moreover, Chicago area locals may decide to strike after the national pact is negotiated as they have in the past.
The truck strike is not expected to affect production and distribution of oil products because pipelines, jobber-owned trucks, and independent trucklines handle most of the traffic. Moreover, the truck strike and the airline strike are helping to alleviate the very tight supply situation for diesel fuel, jet fuel, and heating oil. Inventories of these products had been drawn down to dangerously low levels, especially in the Midwest.
No problems have been reported recently with the nuclear stations that supply a vital portion of the electricity used in Illinois, Michigan, and Wisconsin. Commonwealth Edison, which serves 8 million people in Northern Illinois, depends on nuclear power for almost half of its requirements. There is grave concern that the problem at Three-Mile Island will add force to demands that construction be stopped on several new nuclear stations and that existing stations be closed.
The producer equipment surge is still underway. Machine tool builders see no letup in demand unmatched since World War II. Producers of freight car components have decided to expand capacity, finally convinced that the boom will last.
The auto and truck market is generally strong, but very mixed. Some economical cars are bringing premiums over list prices, and some standard-size models are in short supply. However, supplies of light trucks, other than four-wheel drives, are now ample. Demand for heavy trucks remained strong in March, much to the surprise of some forecasters.
Mainly because of a surge in livestock prices, average farm prices were at record levels in the first quarter, 24 percent above year ago. Net farm income in 1979 is expected to surpass the 1973 record which was nearly equaled in 1978. Farmers are buying equipment at a fast pace, and are expected to continue to do so. The truck strike is not expected to significantly affect supplies of meats and other perishables, almost all of which are carried by independents. Tie- ups in terminal areas are possible, however.
Increased pork and poultry production, perhaps as much as 20 percent, will moderate upward pressures on food prices in the second half of the year.