Even though some softening in farm income is anticipated, no immediate letup in consumer spending or increase in unemployment were foreseen, in general, by District bank directors. District gross farm income in 1974 is expected to approximately equal last year's level, and net farm income is anticipated to be down from a year earlier. In addition, credit conditions are tight at District rural banks. Although slowing was cited in several retail spending categories, especially automobiles, the consensus was that despite the softening in farm income, spending in rural areas has not yet been significantly affected and District retailers are hopeful for a good Christmas season. In contrast to the prospects of sharply rising unemployment in the national economy, several directors foresaw no immediate increase in their areas joblessness.

Although the consensus among directors was that the District's gross farm income in 1974 will approximately match last year's level, the situation is expected to vary within the District. Given that livestock prices are down 60 to 70 percent from a year ago, a Montana director indicated that the outlook is rather bleak for the District's livestock industry; this view was also voiced by a western South Dakota director. Grain producers in Montana are benefiting from record high prices and relatively good crops this year, but farm receipts are expected to be off this year in North Dakota, where dry weather restricted crop yields. Directors from Minnesota and western Wisconsin state that they expected their areas' farmers to do quite well.

Given the above opinions about gross farm receipts, directors looked for District net farm income to be down in 1974 from a year ago; however, one view was that 1974's District farm income would be high by historical standards. Another opinion was that District farmers have considerable savings and that crop incomes were carried over from 1973, which would help support their income this year. One more view was that the general softening in the economy would put downward pressure on farm input prices, which would also help the net farm income situation in 1975.

According to our latest agricultural credit conditions survey, this year's District farm income developments have slowed deposit growth at rural banks and increased loan demand. The slow deposit growth is a result of several factors: 1. Drought and frost have reduced crop yields in many areas. 2. In areas where crops are good, farmers are holding their crops in hope of benefiting from further price increases. 3. Cattle prices are lower than last year. 4. The movement of feeder cattle from western ranges to Midwestern feedlots has been much slower than usual. Further, the contract market for feeder cattle virtually disappeared this past summer. At the same time that deposit growth has slowed, loan demand has remained high. Bankers indicated that an important reason for this has been the need to finance cow-calf operations through the winter months, since many ranchers will be holding their calves and yearlings and gambling on a turnaround in the livestock industry next spring. Consequently, credit conditions are tight at District rural banks. Thirty percent of our survey's respondents expect problems in meeting their fourth quarter loan demand, and only 27 percent are actively seeking new loan accounts.

Even though concern was expressed about sales prospects and some softening was reported, directors generally expected District retail spending to hold up quite well until the end of the year. Directors from rural areas indicated that the softening in farm income either had not yet begun or else was just beginning to affect spending in their areas. This view was also expressed by District bankers responding to our latest agricultural credit conditions survey. Several directors stated that their areas' retailers were looking for a good Christmas season. Still another view was that Christmas spending would be stronger in the District than in the nation. One director stated that retail sales have been spotty in his area, and another expected consumer nondurable sales to hold up quite well but higher-priced durable sales to be off. Higher-priced and fashion merchandise was selling quite well in another directors s area, but lower-priced merchandise was becoming somewhat difficult to move. Most directors stated that auto and truck sales were off in their areas.

In contrast to the increasingly bleak prospects for employment nationally, several directors were rather optimistic about their areas' prospects. In North Dakota, labor market conditions were termed normal and a skilled labor shortage was cited. In Montana, expansion in the coal industry is absorbing workers; however, the underground copper mines there were recently closed, affecting 700 workers. The unemployment rate is currently at its lowest level in a number of years in the upper peninsula of Michigan, as that area has benefited from the increased demand for iron ore. Within the Minneapolis-St. Paul metropolitan area, however, some layoffs have been reported. Recently, a large window manufacturer layed off 680 people—approximately a third of its work force—in response to the slump in the housing industry. Also, concern was expressed that a prolonged period of severely cold weather this winter could disrupt natural gas supplies to industrial employers in the Minneapolis-St. Paul area, resulting in additional layoffs this winter.