Beige Book Report: Minneapolis
December 15, 1976
District sales activity in the final weeks of 1977 appears to be satisfactory. Retailers are reporting good holiday business and auto and truck sales are holding up quite well. Also, district manufacturers are enjoying large sales gains. However, loan demand at district commercial banks is only "steady" or "flat," and many bankers in agricultural areas are having to extend loan maturities. Despite colder than normal weather, fuel supplies are adequate, but shortages could emerge if colder weather persists. Looking ahead to 1977, agricultural prices and moisture conditions are sources of concern and will significantly influence this region's economic activity.
Recent retail sales have been quite good, and retailers are optimistic about holiday sales. Minneapolis and St. Paul retailers have been quite pleased with their holiday business so far and are looking for a good December. However, they are uncertain as to whether this buoyancy will carry over into 1977. South Dakota and Montana retailers also look for good holiday business. And a bank holding company official states that recent reports received from around the district are generally quite positive regarding consumer spending—but not quite as optimistic as a month earlier.
In communities that are primarily orientated toward agriculture, however, the drought has begun to cut into spending. A representative of a rural Minnesota clothing store chain, for example, would be delighted with even a modest increase over last year. Spending by farmers on autos and trucks is off in North Dakota, though holding up quite well in most other areas of the district. In addition, farm implement sales are down in several areas.
A Reserve Bank director from the Upper Peninsula of Michigan expects holiday spending to be down substantially from last year due to a strike and layoffs in that area's paper and copper industries. Also, depressed economic conditions are curbing auto sales in the Upper Peninsula.
The Ninth District manufacturing sector continued to experience strong sales gains in the third quarter, according to our November Industrial Expectations Survey. Total manufacturing sales advanced 15.1 percent between the third quarters of 1975 and 1976. This followed a surprisingly strong second quarter in which sales gains reached 20.3 percent above a year earlier. Furthermore, district manufacturers expect strong, though somewhat more moderate, sales gains through the first half of 1977. Advances of 11.5, 11.6, and 10.5 percent over a year ago are anticipated for the current and next two quarters.
Although district manufacturers anticipate continued sales advances, survey respondents are generally satisfied with current levels of inventories and plant and equipment. Also, manufacturers are not expanding their payrolls, as indicated by Ninth District manufacturing employment, which has remained relatively unchanged since early 1975.
Loan demand at district commercial banks is generally characterized
as being "flat" or "steady." One banker reports that most increases
in lending have been either seasonal or extensions of existing
loans; according to another, commercial lending has not been strong.
And in agricultural areas, it has been necessary for many bankers to
refinance or extend existing loans. However, improved prospects are
anticipated
for mortgage lending in the district; and an unusual
number of loan losses is not foreseen as a potential problem.
Colder than normal temperatures in November and early December have started to strain energy supplies. The demand for natural gas has been much higher than normal, and interruptible natural gas users have substantially increased fuel oil consumption. However, according to industry and government officials, the situation will be manageable, if the below normal temperatures don't continue.
In large part, prospects for the Ninth District's economy in 1977 depend on agricultural developments. Several Reserve Bank directors are of the opinion that livestock prices may be turning around, although recent prospects for wheat prices are not very heartening. And next year s poor moisture prospects are causing a considerable amount of anxiety around the district. In addition to these concerns is the awareness that the full economic impact of this year's drought will probably not be felt until the first half of 1977.