Beige Book Report: Minneapolis
November 11, 1970
Observations of bank directors and officers indicate that consumer uncertainty in the Ninth District is still very prevalent; this uncertainty is being reflected in consumer spending decisions. The one bright spot on the horizon is the upswing in residential building activity, although the outlook for other construction sectors is mixed. The General Motors strike is having a minimal direct effect on Ninth District economic activity, but the Northwest Airlines strike is causing considerable difficulties in some areas of the District.
Because of uncertain future economic conditions, consumers in the
Ninth District are still watching their purse strings very closely,
and, based on savings flows to local savings and loans and banks,
consumers are still saving near record proportions of their incomes.
Although retail sales in scattered eastern portions of the District
seem to be rising above
year-earlier levels, there was a general
consensus among directors of the bank that consumer spending is
still very weak, especially for "big ticket" items. One director
could only describe Minnesota retail sales as being "bad;" and,
recent reports of additional layoffs certainly have not stimulated
consumer optimism in the twin cities. Honeywell has announced a
layoff of 600 workers in early November, and employees expect
further cutbacks. Univac's closing of its Federal Systems Division
will affect 400 workers. The
Dayton-Hudson Corporation, anticipating
that consumer buying will not pick up until next year, has announced
that it will build only three new stores next year instead of the
six it had originally planned.
The results of recent bond elections suggest that voters are as wary of state and local government capital spending as they are of their own private expenditures. A bond dealer guessed that about 50 percent of recent bond referendums in the District have been defeated. He also stated that many of those that have passed were only successful after two or three attempts, and only after substantial paring of original requests. Because of voter reluctance to pass new issues, many boards and local government units are not even putting bond issues on the ballot but instead are waiting for a change in voters' attitudes.
States and municipalities, with the exception of Montana which has a six percent statutory ceiling, have been able to float bond issues because of the easing in market interest rates, and dealers have had little trouble in moving their inventories. As a result, dealer inventories are at very low levels. A few directors commented, though, that some municipalities which have been authorized to float issues are holding back in hopes of further declines in interest rates.
Residential construction has strengthened considerably in the District over the past few months because of easier mortgage market conditions and increased emphasis on "235 Programs." Mortgage rates are continuing to slip in the twin cities. Some savings and loans will now make government insured mortgages for as low as one discount point, and one savings and loan is now making eight percent conventional mortgage loans with a 25 percent down payment.
Conditions and expectations in other construction sectors, however, are mixed. Nonresidential building construction generally has slackened and a number of contractors are running into financial difficulties even after reducing expenses as much as possible. For the most part, directors of the bank felt that construction volumes would be even lower than usual this winter but hesitated to guess what would happen next spring when the building season begins in the upper Midwest.
A director who is active in the construction industry felt that District highway construction next year will probably be at about the same level as it was this year. He also felt that bids will turn out to be substantially higher than currently expected because of rising construction costs.
For the most part, the General Motors strike is having only a limited impact on the District, and its effect is restricted primarily to General Motors dealers. Dealers have been selling out inventories but are now "getting down to showroom models." One director felt that the recent reduction in copper prices was partially due to the General Motors strike, and another mentioned that heavy equipment inventories are at very low levels.
The Northwest Airlines strike is having a very noticeable effect in the twin cities, North Dakota, and Montana: numerous cases have been cited where landing and other fees have dropped significantly; firms servicing the airline and airline passengers have experienced substantial losses of income; banks have increased their loans to and are carrying past due loans of Northwest employees; and a number of Northwest Airlines employees have taken jobs at considerably less pay and prestige.