Beige Book Report: Minneapolis
March 12, 1975
Recent evidence indicates further weakening in District business activity. Unemployment rose sharply in January, and manufacturers are not so optimistic as they were last November. Nevertheless, bank directors cited several sectors where business activity has improved. In addition, directors report that District businesses have not been confronted with overly excessive inventories; inflationary pressures have also eased. The District's rural areas continue to be relatively unaffected by the recession.
Unemployment continues to rise. The District's unemployment rate, seasonally adjusted, increased from 5.9 percent to 6.4 percent between December and January, with the Minneapolis-St. Paul area rate jumping from 5.1 percent to 6.2 percent. In early 1975, District help-wanted advertising was down 30 percent from a year ago and initial claims for unemployment insurance were up 35 percent.
District manufacturers are not so optimistic about their sales outlook as they were last November. After increasing 15.9 percent from a year earlier in the fourth quarter, District manufacturers look for their sales to surpass year-ago levels by around 9 percent during the first nine months of this year. (Last November respondents had anticipated a 14 percent sales gain during the first half of 1974.) Both durables and nondurables producers revised downward their sales expectations, with price increases probably accounting for most, if not all, of the anticipated sales gains. Recent declines in District manufacturing employment also denote a weakening in manufacturing activity. There are, however, some areas of strength. Twin Cities producers of medical equipment and peripheral electronic data processing equipment are enjoying strong sales. Small local machine shops are also doing quite well from both a volume and profit standpoint.
Although District business activity has continued to weaken, some District industries have recently shown improvement. Several directors commented that the automobile rebates have had a favorable effect upon sales. The substantial inflows of savings to thrift institutions have made more mortgage money available, and one large Minneapolis-St. Paul area savings and loan association has begun to advertise the availability of funds. In addition, the observation was made that lower interest rates have benefited finance companies, the securities industry, banks and utilities. A director associated with the retail trade industry indicated that his firm's sales improved in February but cautioned that it was too early to ascertain whether a definite pickup in consumer spending has occurred.
Directors from outside the Minneapolis-St. Paul metropolitan area indicated that business has held up quite well in their areas. Two directors from the Dakotas described business in that region as normal for this time of year. A Montana director stated that his area's businessmen are more optimistic than earlier this winter and reported that his area's retail sales have held up quite well. A director from the upper peninsula of Michigan, however, indicated that business has been off in his area's copper and paper industries.
Directors indicated that no excessive amount of unwanted inventory accumulation has occurred in the District. Many local and regional companies in the Twin Cities area are holding inventories above desired levels. The situation, however, does not call for any forced liquidation of inventories. Most managers are of the opinion that, with a modest reduction in their rates of output, the desired level and balance of inventories can be achieved by midyear or earlier. Another report indicated that the inventory situation in the retail trade industry has improved. Directors from outside the Minneapolis-St. Paul metropolitan area generally agreed that excess inventories are not a problem. However, two directors reported a weakening in farm machinery sales and a recent buildup in inventories. Also, the District's livestock industry is burdened with an excessive supply of cattle; one director felt that the District's livestock industry would not recover until 1978.
Bank directors were unanimous in expressing the opinion that inflationary pressures have or will be easing. One director, for example, indicated that his firm's budgeted price increases for 1975 were only half as large as price increases experienced in 1974. Many directors cited examples of price reductions in their area or industry. One report indicated that list prices are not being cut because of some fear that there will be a return of wage and price controls. However, transaction prices are declining as businessmen provide special incentives or volume discounts.