Most sectors of the Ninth District's economy performed fairly well in the first half. With the prospect of lower farm incomes and continued high interest rates, however, several sectors face a somewhat less promising second half. Retail sales gains have been favorable so far this year, but several District retailers are unsure of their future sales prospects. District automobile sales are expected to improve, however. A slowdown in savings inflows at District S&Ls, combined with statutory loan rate limitations, indicates that little improvement can be expected in the District's already depressed home-building industry. Loan demand at District banks is strong and no letup is foreseen. Time and savings deposit growth at District banks has been faster than in the nation but is expected to slow.

According to a survey of major District retailers, consumer spending continued to expand in the second quarter. Cool weather early in the season hurt sales of clothing and other summer merchandise, but several respondents look for a good summer. Some respondents did express reservations. A regional representative for a major national retailer expects his firm's catalog sales to drop in July and August, due to large price increases, but recover by fall. A spokesman for a major retailer headquartered in the Twin Cities said his firm is quite uncertain about the future and is watching inventories closely. An economist with another retailer indicated that farm income developments would have a major impact on his firm's sales in coming months. In addition, he looks for a squeeze on spendable income as more money is allocated for food and gasoline. The outlook for the District's tourist industry this summer remains good.

District automobile dealers seem better off than their national counterparts. Seven upper midwest regional sales managers said the prosperity in the District's rural areas and the fact that the region was not hit severely by the energy crisis have helped their business. They reported that car sales have improved in the second quarter and that excessive inventories are not a problem. Several respondents even said they will be unable to satisfy customer demand this summer.

The bad weather of May and June and the current dry spell have undermined hopes for a bin-bursting harvest of corn and soybeans. The full extent of the damage to these crops is not yet known, so prices are likely to remain unsettled until a full assessment has been made. Farm prices in the second half of 1974 are expected to lag behind last year's prices, and since input prices have risen constantly throughout 1974, net farm incomes will probably be down from 1973 levels.

District housing unit authorizations during the first five months of 1974 were down 10.2 percent from a year ago. Because of the financial situation, a housing recovery is not in sight. Savings inflows to District S&Ls slowed markedly in the second quarter which, coupled with a statutory limitation of Minnesota loan rates, has curtailed the supply of mortgage funds in the District. Consequently, current terms on new mortgage commitments in the Twin Cities are quite stiff. One large Twin City S&L requires a 40 percent down payment on conventional mortgages with a maximum amount of $20,000. Another requires 50 or 60 percent down, depending on whether the house is located in the city or the suburbs. The supply of FHA-insured mortgages is somewhat more plentiful because of the relatively high effective interest rate-presently 8-3/4 percent plus 5 points. However, the current maximum mortgage amount of $33,000 on FHA loans is insufficient for many homes on the market.

Loan demand has remained strong at District banks; loan growth at District member banks during the first half increased about as fast as at national banks. Much of this demand originated outside the District as real estate investment trusts and other national borrowers unable to obtain funds in the commercial paper market used lines of credit at District banks. Regional loan demand was also strong. Construction loans at Minneapolis/St. Paul area banks grew especially rapidly because of problems with cost overruns, material shortages and cancellations of take-out loan commitments by permanent lenders. District bank consumer credit, on the other hand, was quite weak. In general, loan demand at District banks is expected to remain strong.

Consumer-type time and savings deposit growth at District banks in recent months outpaced comparable national increases. This difference can be explained by the fact that District banks draw a greater proportion of their savings from rural areas where farm incomes have been high and interest rate sensitivity is perhaps lower. If farm incomes decline later this year, deposit growth can be expected to slow.