Beige Book Report: Minneapolis
October 14, 1970
The downturn in Ninth District business activity appears to have leveled off, but there are no indications of a significant recovery over the next few months. So far, the General Motors strike has had only a minimal impact here, but the Northwest Airlines strike is having a considerable influence on scattered areas of the District. Loan demand is still very strong according to directors and officers of this bank, in contrast to reports from other sections of the country. Agriculture income in the District is expected to fall below last year's level because of lower crop yields and declining livestock prices.
The directors and officers of this bank feel that the General Motors strike is having only a minimal effect on the District economy. For the most part, GM dealers entered the strike with heavy inventories, especially of the 1970 models and have actually increased their sales in recent weeks. According to the car dealers, people seem more than willing to buy 1970 models because of their lower prices and longer warranty periods. At the same time, auto sales of other makes have been brisk, and these dealers feel a part of the increase is due to the GM strike.
An officer of the Minnesota AFL-CIO feels that the GM strike will continue longer than the 1967 Ford strike and could very well extend for at least three to four months. He based this expectation primarily on the fact that about 40 percent of GM's production workers are under 25 years old, and these workers tend to be more militant than the older workers. If his expectation is borne out, GM dealers in the District will probably run short of parts and new autos, as inventory shortages are already becoming apparent.
The Northwest Airlines strike is also having scattered effects throughout the District. A few firms servicing Northwest Airlines have furloughed employees, and a number of retail establishments have experienced noticeable sales reductions. In addition, Northwest Airlines has cut their flight schedules because of the strike, and as a result landing fees to a number of airports in the District have been drastically reduced. These landing fees are important contributions to airport sinking funds, and in at least one case so far, these reductions have become especially troublesome.
Ninth District bankers are still experiencing strong demands for loanable funds, according to information gathered during go-around sessions with both directors and officers of this bank. The continued strong loan demand seems to be general throughout the District as no one cited a case where loan demand had diminished. On the contrary, numerous instances were cited where demand had actually strengthened and non-financial businesses had taken further steps to economize on the use of funds. One reason frequently cited for the continued strength in loan demand was that inventories seemed to be moving above planned or desired levels. One director stated that he knew that one of the top 50 firms in the nation and two mining companies have begun pushing off their accounts payable to the latest date possible.
The power shortages that have plagued the East Coast have not yet been felt in the Ninth District, but such occurrences in the next few months would not be surprising. Moreover, indications are that over the longer horizon the problem could become critical. Anticipating possible shortages during the coming winter, the Minneapolis Gas Company, which buys gas primarily from the Northern Natural Gas Company, recently notified its interruptable gas customers to check their emergency back-up equipment because of potential shortages in the coming months. In addition, fuel oil suppliers are reluctant to make firm price bids for fuel oil to be delivered at a later date because of possible future shortages and further price increases. The price of "heavy" oil to industrial users in the Twin Cities has already risen to 10 cents per gallon from the seven cents per gallon last year.
Farm income is down from a year ago, according to the results of the latest agricultural credit conditions survey. The survey reflects conditions on October 1 according to the responses of 142 agricultural bankers. There were two major reasons cited by respondents for lower income: (1) lower crop yields, which were not entirely offset by higher grain prices, and (2) declining livestock prices, especially for hogs. Lower farm receipts have caused both a drop in farmer and rancher spending and a slower rate of debt repayment. Bankers are anticipating an increase in the demand for farm debt refinancing as a result of the lower income. The current survey indicated that farm credit conditions had eased slightly in the last three months, but still remained tight compared with conditions in previous years. The rise in interest rates at agricultural banks appears to have slowed down and fewer bankers report reducing or refusing a loan due to a shortage of funds.