Beige Book Report: Minneapolis
December 9, 1970
Ninth District employers apparently are continuing to feel the effects of weak economic conditions, and are still paring work forces and reducing production schedules. Results of our latest quarterly industrial expectations survey reveal that District manufacturers are not anticipating any significant sales increases over the next six to nine months. Consumer spending, for the most part, is still weak, although some directors felt that retail sales were picking up in their areas.
Area employers apparently are still in the process of reducing their
work forces and adjusting their work schedules. The largest layoff
over the last month occurred at Honeywell, Incorporated, where an
additional 341 workers were separated because of a continuing
reduction in defense spending. Seventy-five workers were laid off by
a
film-processing manufacturer in the twin cities, and a furniture
and flooring manufacturer in upper Michigan furloughed forty-five
workers because of a lack of orders, reportedly because of the
slowdown in school construction. In addition, directors and officers
of the Bank felt that overtime work for the most part was
nonexistent and were either aware or had heard of cases where
employers had reduced work-weeks to less than five days. A local
professional engineering society reported that 10 percent of the
engineers in the twin cities were out of work.
These further cutbacks in employment are consistent with District manufacturers' expectations regarding their sales. According to the results of our latest industrial expectations survey, taken during the first two weeks of November, area manufacturers have revised downward their sales expectations during this quarter and the first quarter of next year. Following a year-to-year sales decline of 3.7 percent during the third quarter, their sales in the fourth quarter to be about 1.3 percent below a year ago. This is the first time in 13 surveys that District manufacturing sales have shown a year-to-year decline and is the first time that District manufacturers were anticipating lower sales than a year earlier. On the brighter side, District manufacturers expect their sales in the first quarter of 1971 to be up 1.3 percent above a year earlier and then to exceed the year-earlier level by 4.2 percent in the second quarter. Although these sales gains imply no significant recovery in District manufacturing activity, this is the first time in a year that manufacturers expect their sales to strengthen, even weakly, over the forecast period.
Also on the brighter side, one of our directors who attended a conference sponsored by the First National Bank of Chicago stated that bankers are generally optimistic regarding business conditions in 1971. According to him, only 10 percent of the 1,100 bankers from all over the country who attended the conference felt that business would weaken further next year. Of those attending the conference, 45 percent felt that interest rates would decline during 1971.
Consumers are still watching their expenditures very closely, but there are some scattered indications that consumer buying may be strengthening. Directors from Michigan, Wisconsin, and Montana for the most part felt that Christmas buying was up from a year ago, and one director noted that traffic has been extremely heavy. On the other hand, one Twin Cities director felt that consumer buying attitudes had not changed in the past month or so and that consumer spending was still very sluggish. Retail sales during the Thanksgiving weekend, which are usually taken as an indicator of the Christmas sales season, were described as "very disheartening" by one major Minneapolis retailer, and many retailers in Minneapolis-St. Paul feel that consumers will remain cautious throughout this buying season. A director from South Dakota felt that consumer buying attitudes are still very conservative. This relative pessimism was reflected in lower sales for both soft goods and durables and has been chiefly caused by the recent large decline in livestock prices.
The directors of this Bank feel that District state and local government construction expenditures next year will not differ markedly from this year. Local legislators, however, have not yet formulated their plans. A few directors were able to cite specific large planned expenditures, but most commented that communities in their areas apparently were not planning major construction improvements. In some cases, public facilities were already adequate while, in others local legislators either are reluctant to impose higher taxes to finance the construction of public facilities or have been turned down by the voters in recent bond issue requests. Primarily in Montana, they are stymied by statutory ceiling rates that they can pay for borrowed money.