Beige Book Report: Minneapolis
May 12, 1976
Ninth District Directors feel that the current economic recovery is proceeding at a healthy pace. Inventories are expanding at a moderate rate. Lead times for filling orders are lengthening and some input prices are increasing, but no firms are currently experiencing problems in obtaining supplies. Consumer spending appears strong throughout the District. Farmwork is progressing several days ahead of normal; topsoil moisture conditions vary widely over the District.
Business inventories in the District are currently expanding, but firms continue to exercise tight control over stocks, and most Directors anticipate no sharp buildup in inventories in the immediate future. A Director from a large manufacturing concern in the Twin Cities says that his firm will be cautious in building inventories in coming months, and he expects the firm's inventories to increase only moderately by the end of 1976. The same Director feels that inventories are increasing in firms which supply goods to the residential construction industry; but he says that in capital goods industries neither shipments nor inventories appear to have picked up. Despite "faint rumblings of an upturn in capital spending," he foresees no sharp advance before 1977.
A Director from the banking industry agrees that so far there has been no aggressive buildup" of inventories and adds that firms are feeling no pressure to stock up in advance since orders are currently being filled quickly. An executive from an agribusiness firm thinks that inventory increases will be held in check, feels that current inventory- to-sales ratios are satisfactory, and says that firms may be able to operate with smaller inventories than in the past because of improved inventory control techniques. A Director from a rural North Dakota bank says that inventories in his area never fell far during the recession and says that firms are now increasing stocks.
Directors say that firms in the Ninth District are currently having no problems in obtaining supplies, though lead times are increasing. One Director says that the lead times for steel and brass products have now increased from about four weeks to six weeks, but he viewed this as a return to a more normal lead time. Severe supply bottlenecks are not likely in 1976, according to the Directors. But some Directors feel that rising demand for steel, plastics, and paper products may push those industries to capacity limits in 1977.
Directors say that prices of primary inputs have increased in recent weeks. One Director reports that a freezer manufacturer in his area has recently experienced a "slightly more rapid" rate of increase in raw materials prices and may consequently raise its own prices by the year's end. Another Director says that the price increases for steel, aluminum, copper, and paper products in the last sixty days have ranged from about 5 to 15 percent; he expects prices of energy and plastics to increase faster than the general rate of inflation in coming months, A third Director said that prices of steel castings and ball bearings have increased sharply; a Minneapolis Director expressed concern over rising labor costs; but a Montana Director says that many farm input prices are now lower than a year ago.
Directors agree that consumer spending is strong, and they see no slowdown in the immediate future. At the same time, they stress that the pace of consumer spending has not been immoderate. For instance, one Director from a major upper Midwest bank sees no consumer spending spree and thinks that an "explosion" in consumer debt in coming months is unlikely.
Spending is strong in rural areas, as has been true throughout the recession. Recently, sales and employment gains have been especially brisk in the Billings area, where an expanding coal industry is bolstering the local economy. Mining and drilling activity is also boosting the economies of localities in North Dakota.
In the farm sector, fieldwork is several days ahead of normal. Planting has made rapid progress in nearly all areas of Minnesota; small grain seeding is nearly complete in some areas of the Red River Valley, and corn in southern and western Minnesota is one-fourth planted. Sugar beet planting in North Dakota is three-fourths completed. Winter wheat conditions in Montana are good to excellent.
Topsoil moisture is adequate over large parts of the District, though local moisture conditions vary greatly. Moisture is excessive in some parts of North Dakota, but is short across parts of Minnesota and South Dakota. Moisture is adequate in all parts of Montana, and one Director says that range conditions in that state are "tremendous."