Beige Book Report: Minneapolis
January 15, 1975
In the recent weeks the spreading slowdown in the national economy has increasingly affected the District. Labor market conditions have softened, and District employers are laying off workers. Retail sales gains in December were below those reported earlier in the year, despite sizable sales increases just before Christmas. Price cutting has made District retailers concerned about their profit margins and cautious about the 1975 outlook. Savings inflows have improved in the District, but no immediate increase in home building is foreseen since savings and loan associations are using these funds to improve liquidity rather than to expand lending operations. One encouraging factor, however, is that District farmers should benefit from high prices, at least through the first half of the year.
Although the District has not experienced the sizable layoffs reported nationally, job opportunities are shrinking. Recently, the number of job orders to state employment offices in the Twin Cities metropolitan area has declined noticeably. Help-wanted advertising in the District has also been dropping since August. Three of the District's largest manufacturers have reported some work-force reductions. A large computer manufacturer, headquartered in the Twin Cities, announced that declining business forced it to reduce operations in the last half of 1974, and further reductions in the first quarter of 1975 are planned.
Three other District computer manufacturers recently announced that they were also curbing operations. Also, District manufacturers of home-building supplies and television components have let workers go. The slump in auto production is beginning to be felt in the District, and several manufacturers of auto components have had to lay off workers.
Recent District retail sales also reflected a letup in economic activity. Retailers surveyed by this Bank indicate that their sales had been running around 10 percent ahead of a year ago until about mid-November when sales deteriorated markedly. In December, most reported sales increases of only about 5 percent, despite very strong sales gains Christmas week. However, since December's gains in many instances were achieved by price cutting, several retailers expressed concern about their earnings. District automobile sales also weakened during the final months of 1974. Resort owners in the District reported that neither the dollar volume of business nor attendance increased as much as through the fall of last year.
With regard to 1975, District retailers were cautious. One respondent indicated that the large number of people taking advantage of Christmas sales may have hurt his firm's January business; another described his business so far this year as "lousy". Still another termed his early January business as encouraging but indicated that warmer than normal weather through December and early January had adversely affected the sales of some seasonal merchandise. Retailers are apparently cutting down inventories and trying to be as liquid as possible in order to take advantage of buys later in the year. Regional automobile sales offices, responding to a survey last month, were uncharacteristically conservative in their 1975 outlook.
Savings inflows to District savings and loan associations improved in the final months of 1975, but no immediate improvement in home building is foreseen. Loan commitments have not yet increased and will probably not rise significantly during the first quarter of 1975. One reason is that savings and loan associations have had to reduce their large volume of borrowing and increase their liquid assets before expanding their lending operations. However, there was a slight easing in interest rates on Government-insured mortgages in the final months of 1974.
Agriculture helped insulate the District from the downturn of the national economy last year, and many District farmers are starting 1975 in a generally good financial condition. Conditions in the livestock sector exerted somewhat of a drag on last year's farm income, and weather conditions cut crop yields. But higher prices offset the short-fall in crops, and cash farm receipts for last year are expected to be up slightly from a year earlier. Consequently, District farmers with crops to sell at the beginning of 1975 are in a strong cash flow position.
Crop prices are expected to remain good at least through the first half of 1975 for several reasons: Supplies are tight, domestic demand remains strong, export buying is good, and farmers have been holding crops, hoping to obtain higher returns.