Beige Book Report: Minneapolis
January 14, 1976
Year-end economic indicators in the Ninth District remained mixed. Consumer spending advanced, but recovery was not evident in the District's manufacturing sector. Overall employment increased through the second half, but growth in the labor force kept the unemployment rate high. Savings inflows into financial institutions were strong, but business lending was weak and much mortgage lending was being used to finance existing housing. Consumer installment credit turned up from the low levels of early 1975, and real personal income growth improved as a result of a slowdown in the rate of price increase. Tourist spending was good; auto sales were up sharply from 1974. New residential construction was still sluggish. Cash farm receipts were up from the first half but down from l974's pace.
Most retailers say that December retail sales were good. Increases over December 1975 reportedly ranged from 10 percent to 35 percent. Many retailers characterized December sales in such terms as "better than expected", or "very good". One said that sales during Christmas week were especially "heavy". Another reported good sales of big-ticket items.
But not all retail lines experienced strong sales. Winter apparel sales lagged until late in the year because of warm weather. Many retailers say that consumers were ''value-conscious'' and ''very practical'' in their purchasing decisions. Retail inventories were kept tight through the Christmas season. Even retailers experiencing good sales were hesitant to rebuild inventories; many appeared content to run out of some items rather than risk extensive overstocking.
Consumer spending also appeared strong in the tourist industries, except in winter resort areas with only light snow covers. Montana resorts say that sales of ski lift tickets were good to excellent, and a Minnesota resort says that current-dollar sales were up 10 to 15 percent over last year.
All auto dealers surveyed by this bank reported better sales than in 1974's depressed fourth quarter. Increases ranged from 8 percent to better than 100 percent. Buyers showed renewed interest in both intermediate and full-sized models. Inventories of automobiles on dealer lots were being kept at normal or low levels.
There was little evidence of recovery in the District's manufacturing sector. Manufacturing employment bottomed out in June 1975 and has been virtually flat since then. Nonetheless, survey results indicate that manufacturing sales expectations are improving.
The overall employment picture was somewhat brighter than in the manufacturing sector. Since June, employment has been increasing steadily. Nonetheless, the year-end unemployment rate remained high due to labor force fluctuations.
The construction sector was giving little impetus to the economic recovery. Home-building activity, as measured by new permits issued, failed to sustain earlier strength, and total 1975 permits seemed likely to fall short of even the low 1974 level. Nor was there much activity in nonresidential construction; the only bright spot in the District was accounted for by power and light projects or other public projects.
Gross cash farm marketings held strong throughout the second half following a slow first half. At the year-end, cash receipts were running only slightly below 1974's pace. Livestock receipts were increasing, but cash receipts for grain continued to run below 1974 levels. The record prices being paid farmers for dairy products have bolstered farm incomes in the District. Prices of slaughter hogs and slaughter cattle, though down from midsummer peaks, are still better than last year. Feeder cattle prices remain fairly low, though demand in the fourth quarter picked up somewhat from earlier rates.
As had been true throughout 1975, savings inflows at District banks and savings and loan associations remained substantial in the fourth quarter due in part to high levels of savings in both the consumer and business sectors.
Business lending by commercial banks in the District closed the year on a flat note. Savings and loan associations' mortgage loans made and loan commitments rose sharply during the year, even though new home construction remained depressed. Much new mortgage lending was apparently being made on existing housing; another factor was a higher rate of spending on home improvements.