May 17, 1972
District bank directors were unanimous in expressing the opinion that District consumer sentiment has strengthened and that second quarter retail sales are expected to improve. Reports on capital spending, however, varied, with some of the directors reporting a pickup while others reported no increase. Aside from rising vacancy rates for apartments in the Minneapolis/St. Paul Metropolitan Area, the residential construction market in the District continues strong. First quarter demand for long- and intermediate-term agricultural credit was robust and is anticipated to remain vigorous in the second quarter.
Consumer sentiment has improved, and bank directors report that District retailers expect their sales to advance noticeably in the second quarter. Although his firm's sales gain in April failed to match February's and March's performances, one director anticipates a good second quarter and attributes April's poor showing to the year's timing of Easter. A Twin City Area banker noted a marked increase in consumer sentiment and indicated that it was reflected in automobile sales and installment loans. So far this year, retail sales in another director's area have been good, and he expects them to continue to improve. In South Dakota, the recent improvement in the cattle and hog markets has resulted in improved consumer attitudes and a pickup in retail sales. A similar view was expressed by a director from Southwestern Montana where increased cattle prices and expanding copper production have stimulated consumer spending. Two directors, however, revealed that uncertainties over the Vietnam War recently tended to dampen consumer sentiment in their areas.
A pickup in investment spending was disclosed by several bank directors. A Wisconsin director, for example, stated that a shopping center is under construction in his area and that two additional shopping centers are expected to be built. A Montana director related that a considerable number of small commercial construction projects were under way in his area, while a South Dakota director reported a rise in farm machinery sales. One director did not report an improvement in capital spending, but he did detect an increase in loans to finance inventories. In the opinion of a Twin City Area banker, however, no pickup has occurred in either inventory or capital spending.
Recent surveys revealed that vacancy rates in Twin City Area apartments have risen, but directors' reports disclose that this phenomenon is restricted to the Minneapolis/St. Paul Metropolitan Area. A Twin City Area banker stated that overbuilding has occurred in certain areas of the metropolitan area, but luxury apartments are experiencing no difficulty in attracting tenants. This bank indicated that it has not experienced any deterioration in the quality of real estate loans but is being cautious in extending credit for apartments. Outside the Twin Cities, directors reported no overbuilding of apartments and indicated that the housing market remains quite strong.
According to our latest agricultural credit conditions survey, demand for intermediate- and long-term agricultural loans increased in the District during the first quarter, while the demand for short-term loans did not change. The strength in demand for intermediate-term loans came from an increased level of spending on machinery and equipment.
It appears that the desire for long-term loans was increased by renewed optimism about the long-term profitability of land and land- related long-range capital investment. The survey also indicates that more farmers have sought long-term financing simply because interest rates have declined.
Because survey respondents foresee continued farm spending, they expect the demand for intermediate-term credit to rise throughout the second quarter. Although the demand for short-term agricultural credit does not appear to be poised for more than a normal seasonal increase. Responses indicate that the demand for long-term agricultural credit is anticipated to continue to rise. Bankers also commented in the recent survey that their interest rates charged to farmers have become very sensitive to rates charged by their farm credit system competitors.