Beige Book Report: Minneapolis
December 10, 1975
The Ninth District is currently experiencing solid, though not spectacular, economic gains. Consumer confidence is rising, and retailers are having a good Christmas season with sales perhaps stronger than had been anticipated. Manufacturers have also revised their sales expectations upward, and inventories at both the retail and manufacturing levels are at more satisfactory levels than a year ago. Some improvement is occurring in residential construction.
Trends in farm income in the District are mixed. On balance, net income in the District may be down from 1974, though actual year-to-year changes vary widely depending on local weather conditions and on local product mixes. Directors from Wisconsin, Michigan, and Minnesota say that higher dairy prices have added to farm incomes. Directors throughout the District say that cow-calf operators probably have better incomes than a year ago but are still not operating at break-even points. Incomes of other livestock producers are most likely up from a year ago, while the incomes of grain farmers are down in many areas due to lower prices. Spending remains strong in rural areas throughout the District.
Ninth District directors feel that consumer spending may provide a basis for a firm recovery in the first half of 1976. Most directors report that fourth-quarter retail sales are good. Sales of big-ticket items are improving. Car sales are up from a year ago, and used cars are moving especially well, according to one director. Farm spending on machinery and equipment remains at high levels. One director, noting that retail sales during Thanksgiving week were very strong, says that fourth-quarter sales appear quite good when compared with 1974's fourth quarter but also cautions that the gains are less impressive when compared with sales of two years ago. Many directors observe that consumers remain extremely "value-conscious" in their selection of merchandise.
According to most directors, residential construction activity in the District has shown some improvement in recent months. However, as one director noted, the gains thus far have not been very substantial, and the demand for home loans remains light. Directors from many rural areas of the District indicate that housing construction has been fairly steady throughout the recession.
The Ninth District industrial sector is expected to show slight improvement in the fourth quarter and should score stronger gains through the first half of 1976, according to the latest quarterly industrial expectations survey taken in early November. The 164 manufacturers responding to the survey are expecting current-dollar sales to increase 7.0 percent in the fourth quarter but anticipate sales gains of more than 10 percent during the first half of 1976.
In addition, manufacturers are becoming more optimistic, and it now looks as though fourth-quarter gains will be greater than had been anticipated in the August survey. The 7.0-percent anticipated increase in manufacturing sales represents an upward revision from the 4.8-percent gain which was forecast in the August survey. In real terms, after allowing for a moderate rate of inflation, sales in the fourth quarter may still be somewhat above last year's fourth-quarter levels. However, 1976 should bring a more substantive pickup in real sales—provided that current expectations are borne out and that inflation does not accelerate from its current pace.
Stronger fourth-quarter sales gains are expected in the nondurables sector than in the durable goods industries. For instance, fourth-quarter sales in food and kindred products are expected to rise by 12.1 percent and to be followed by a 14-percent sales gain in the first quarter of 1976.
The outlook for most durable goods producers is less promising if manufacturers' expectations are correct. Sales in the primary metals and nonelectrical machinery industries are expected to lag year-earlier levels in the fourth quarter, though a turnaround is expected in the first half in these industries. On the other hand, manufacturers of lumber and wood products foresee strong sales gains beginning in the fourth quarter and continuing through the first half. Recent gains in housing starts have perhaps, in part, been responsible for the brighter outlook in that industry.
The District's rural areas currently appear stronger than the Twin Cities' economy. Manufacturers in the Twin Cities Metropolitan Area expect fourth-quarter current-dollar sales to remain below last year's level. In the areas outside the Twin Cities, sales are expected to advance at rates of nearly 10 percent throughout the fourth quarter and should maintain slightly higher rates of growth through the first half of 1976. However, the prospective first-half recovery is expected to be somewhat stronger in the Twin Cities than in rural areas of the District due to a sharper upturn in the Twin Cities' durable goods sector.
Results of the November industrial expectations survey indicate that producers still appear cautious in expanding inventories, though the ratio of inventories to sales appears to be attaining more normal proportions following the inventory reductions of recent quarters.