Beige Book Report: Minneapolis
September 9, 1970
Economic conditions in the Ninth Federal Reserve District continued weak through July and August. Primarily as a result of increasing unemployment nationwide, there appears to have been some back-migration to the rural areas and smaller towns of the District. Retailers in the District have become more optimistic in their six-month sales forecasts, but District manufacturers have revised their anticipations downward. Retail. price increases are becoming less prevalent than they were earlier this year, but industrial price increases show no signs of abating.
Increasing rates of unemployment in urban centers nationwide are resulting in some movement back to rural areas and small towns in the District. Bank directors felt that more people would be coming back if there were suitable job opportunities not necessarily at the same skill or pay levels. It is interesting to note, however, that some of the directors felt that this reverse migration, although largely caused by lack of urban job opportunities is also the result of a growing disenchantment with urban conditions. For example, one director cited the case of Billings, Montana, school system which received 1,200 teaching applications this year, many from experienced teachers in eastern cities.
Directors and officers of this bank, with some exceptions, felt that retailers are becoming more optimistic in their sales outlooks for the rest of the year. Reasons given for this optimism included such things as the recent signs that the slowdown nationwide may have bottomed out and the fact that people are not as uncertain about their employment status as they were a few months ago.
Some of the directors, however, cited cases where retailers were not anticipating sales increases through the rest of the year. One director, from his observations of retailers in the Twin Cities, felt that they were becoming more conservative in their outlooks over the next year than they had been six months ago. Directors from agricultural sections of the District observed that retailers' outlooks were generally favorable, but that there was some concern about sales because of recent sharp drops in livestock prices and lower crop yields in some areas due to a lack of moisture.
In contrast to the generally brighter retail sales outlook, District manufacturers do not expect any significant recovery in sales over the next six months. Respondents to our quarterly industrial expectations survey taken around the first of August revised their previous expectations downward. Sales in the current quarter are now expected to be only 2 percent greater than a year ago before rising in the next two quarters to about 4 percent above year-earlier levels. This finding is consistent with observations by this bank's directors. One case was cited in which a farm implement manufacturer, apparently overstocked with certain types of machinery, was offering large dealer discounts in order to move this machinery out of inventory. Another director felt that capital goods producers had been hurt by the recent cutbacks in plant and equipment expenditures.
There are some indications that price increases at the retail level are becoming less prevalent than they were a few months ago. One director felt that although settlement of the recent teamsters' strike has resulted in some upward price adjustments, retailers are trying to cut down inventories by reducing prices. For example, boat sales were down this year, and dealers are selling them at only slightly above cost. Dry goods prices have remained essentially flat over the last few months, and increased competition from suppliers has held down price increases in men's wear. There is some indication that wholesale prices of men's suits have risen slightly in the last month or so, but retailers are shaving their margins in order to maintain prices.
The directors felt, however, that industrial price increases have not become less prevalent or less frequent than they were six months ago. With the exception of some price cutting to lower kinds of farm equipment inventories, the directors were not aware of any cases where industrial prices have been reduced. Moreover, they felt that industrial suppliers are still making across-the-board increases: U. S. Steel has announced a 5-percent increase for steel used in construction effective on November 16. This is essentially the same rate of increase posted on January 1 of this year, and it appears that other steel companies will follow U. S. Steel's lead. At the beginning of next year, the price of cement used in construction is also scheduled to rise about 5 percent, much the same as it did at the beginning of this year. In addition, users of foundry products recently faced a 6-percent across-the-board price increase.