February 9, 1972
According to bank directors, District commercial loan rates have fallen in response to cuts in the prime interest rate while consumer and mortgage interest rates have declined slightly, if at all. Competition from savings and loan associations has prohibited District commercial banks from lowering their consumer savings rates. Although the outlook for non-residential construction is mixed, District residential construction in 1972 is expected to equal if not exceed 1971's record level. An expansion in District employment is not foreseen by bank directors. District manufacturers foresee their sales improving during the first three quarters of 1972.
The directors reported that commercial loan rates have fallen in the District in response to recent declines in the prime interest rate, but little change has occurred in mortgage and consumer interest rates. The decline in commercial loan rates has taken place primarily at the District's large urban banks, as loan rates have either remained the same or declined only slightly at rural banks. As a result of strong competition from production credit associations, one director reported that commercial banks in his area have slightly reduced the price of agricultural credit. Another director reported that public awareness of declines in the prime interest rate have forced banks in his area to make modest reductions in their mortgage rates.
Competition from savings and loan associations has prohibited District commercial banks from lowering their consumer savings rates. A Montana director indicated that savings and loan associations in his state would like to lower their savings rates, but fear out-state competition.
District housing unit authorizations reached an all-time high of 39,000 units in 1971, and District bank directors generally felt that residential construction in 1972 will at least equal 1971's record level. One director revealed that banks in his area now have more mortgage applications than they can handle. Some directors, however, did express some doubts about homebuilding matching 1971's performance in their local areas. In the Minneapolis/St. Paul metropolitan area some overbuilding of apartments may have occurred. The FHA has temporarily suspended guaranteeing apartment financing in one portion of the metropolitan area and an FHA official reported that apartment construction may have exceeded growth in demand in other portions of the twin cities metropolitan area.
In contrast to the directors' generally favorable outlook for residential construction, their prospects for nonresidential construction varied. In some areas of the District noticeable gains are expected, but no improvement is foreseen in others. The outlook for commercial/industrial construction in the Minneapolis/St. Paul metropolitan area was characterized as weak.
Employment in the District has not advanced during the past year, and, in general, no increase is foreseen by bank directors. In northeastern Minnesota, U. S. Steel's announcement that it is permanently closing the hot side of its steel plant in Duluth has cost that city 1,600 jobs. Part of the Air Force base at Duluth may also be closed down. Smaller crop planting due to the new acreage diversion program will probably reduce the summer demand for farm labor in South Dakota. The Anaconda Company's decision to close its zinc operations will cost Montana approximately 700 jobs, and the copper smelting facilities at Helena may be closed if state Board of Health pollution standards are not met.
Several directors did report some encouraging developments, however. The construction of Cleveland Cliffs' new iron mine and pelletizing plant in upper Michigan will stimulate that area's economy. Also, Mount Rushmore's designation as part of the bicentennial celebration is expected to boost tourist spending this summer in South Dakota. In Montana, the construction of the AEM missile site at Great Falls may help offset some of the decline in other sectors of that state's economy.
According to the preliminary results of our fourth quarter industrial expectations survey, District manufacturers continue to expect that their sales growth will improve during the first three quarters of 1972. District manufacturing sales are expected to surpass year earlier levels by around 7.5 percent during the first nine months of 1972 after advancing 6.6 percent in the fourth quarter of 1971. The current sales predictions are very close to those made for their respective quarters in the last two surveys.
The optimistic outlook for District manufacturing sales can be attributed to a rejuvenation in durable goods sales. In the fourth quarter, District durable goods sales exceeded earlier levels by 10.1 percent, its strongest year-to-year advance in two years. District durable goods manufacturers expect to maintain this rate of gain during the first three quarters of 1972. Much of this expected improvement can be traced to the District's lumber and wood products, electric and nonelectric machinery and scientific instruments industries. No significant increase in the rate of sales gain is foreseen by District nondurable goods manufacturers.