July 5, 1979
Fuel stringencies appear to have pushed an already shaky economy into a significant decline. Profound changes in thinking and planning by consumers, businessmen, and lenders are inevitable. Consumer purchases of low-mileage vehicles have dropped very sharply. The Seventh District has not been afflicted with long lines at gas stations, but driving has been curtailed with adverse consequences for tourism and other nonessential activities involving travel. The "strike" of the independent truckers has had some limited effect in reducing availability of produce and fuel. Demand for most types of capital equipment remains vigorous, but some producers report slower orders. Some easing has occurred in demand for basic materials such as steel and paperboard. Price inflation has accelerated, especially products based on petroleum. Major labor contracts have exceeded the guidelines. Residential construction and sales of existing homes remain seriously depressed. Early development of district corn and soybean crops is rated as "good." Higher grain and soybean prices are boosting farm income prospects.
Supplies of gasoline and diesel fuel in the district are probably about 10 percent below year ago, although no one knows for sure. Some stations are on 70 percent allocations or less. Demand would have been up about 3 percent, assuming last year's prices, according to industry analysts.
District states have generally avoided significant lines at gas stations, but this has been possible only because motorists have curtailed nonessential driving. Dealers have used various devices to discourage sales, usually by shortening hours and/or shutting down weekends and some week days. Auto clubs have warned motorists to stay close to home. As a result, those who have ventured out on trips often report ample supplies. The worst spot fuel shortages have been associated with efforts of independent truckers to impede deliveries. The truck strikes, ironically, have improved fuel supplies in some areas.
Diesel stringencies have caused sharp price increases and are reported to have slowed some construction work. Large truckers report diesel "tight but adequate." The financially troubled Milwaukee Road has indicated that its service, vital to some areas in Wisconsin and Iowa, may be reduced. Diesel fuel for barge and lake-boat traffic is also very tight.
Most large trucking firms have their own storage tanks. They put in reserve supplies in the spring, and seem to be operating normally.
The independent truckers (owner-operators), who use truck stops almost exclusively, have attempted, with varying success, to block shipments of fuel and farm products. The strikes have been most effective in impeding shipments of animals to slaughter. Operations of some hog-processing plants have been halted temporarily. Receipts of fresh produce at terminals have been reduced, but few stockouts are reported. Deliveries of fuel have been disrupted for varying periods, although tank wagon drivers are not directly involved.
The independent truckers' strikes are not supported by the Teamsters. The independents are only loosely organized. In this area they carry mainly "exempt" commodities which are not subject to ICC rate regulations. They are stopping their "own kind," not wanting to tangle with the Teamsters by stopping regulated truckers. Demands of the independents are somewhat amorphous—adequate fuel and/or fuel subsidies, relaxed restrictions on weight and length of rigs, etc.
Reports indicate a substantial drop in business at distant resort areas and outlying shops and restaurants in metro areas. A drastic falloff in demand has been reported for RVs (down 60-70 percent), vans, light trucks, and large cars. For the first time in memory there is even a substantial surplus of Cadillacs. Production has been cut back and layoffs have resulted. The model year clean up will involve unprecedented problems. Prices of large used cars have plummeted.
Conversely, long waiting lists are reported for desirable small cars which are selling at full list price. Supplies of four-cylinder engines, unexpectedly, have become a bottleneck.
The gas shortage has aided some activities. Entertainment and recreational areas close to home are enjoying improved business. Sales of bicycles, mopeds, hand mowers, and gas tank locks have boomed (where available).
Commercial construction is booming, particularly in Chicago's Loop, and new contracts for stores and office buildings remain at a high level. Plant construction activity is well above year ago, but new contracts have dropped off. The residential sector is in trouble. Chicago area permits are 40 percent below year ago for five months. Existing homes have sold very slowly, despite sizable price cuts, which have dropped prices below year ago in some areas.
Demand for capital goods, overall, remains vigorous, but some diversified producers report a slower order trend. Machine tool producers are booked well into 1980. Heavy trucks and most types of construction and farm equipment continue to sell at a fast pace. However, a producer of castings for capital goods reports order cancellations for the first time since 1975.
Demand for workers appears to have eased, particularly in the auto centers. However, Chicago help-wanted ad volume is still above year ago. Demand remains intense for really skilled workers in metalworking trades, the building trades, most white collar occupations, and for professionals generally. Labor pacts have generally exceeded the guidelines. The UAL settlement may be worth 40 percent for three years. Chicago-area carpenters and bricklayers each received a 10 percent boost raising their total compensation to $15 per hour ($30,000 per year), with another 10 percent increase slated for 1980.
Collective bargaining is extending to additional fields. A Chicago- area department store chain recently agreed to a union contract, the first of its kind. A strike of 3,000 Cook County nursing-home employees began on July 1, with demands for a 54 percent increase in compensation over three years.