Beige Book Report: Minneapolis
January 13, 1977
Economic indicators are mixed as the Ninth District economy enters 1977. Sources of encouragement are reports of good holiday spending and strong homebuilding activity. District employment resumed its advance in late 1976, and unemployment declined modestly. Also, livestock prices have recently gained strength. Nevertheless, the region continues to be troubled by a lack of growth in manufacturing and construction jobs. And in contrast to livestock prices, low grain prices are worrying district farmers. However, weather is probably the biggest source of concern to most people. The drought-induced reductions in last season's production will have their full impact on farm spending this year, and many farmers are disturbed about the additional consequences of inadequate moisture in 1977. Cold weather is also straining the district's fuel supplies and curbing winter recreational activity.
Major retailers in the Minneapolis-St. Paul area generally report good holiday sales with December sales up about 10 percent from a year earlier. Furthermore, retailers' comments indicate that January is off to an encouraging start, and post-holiday sales are expected to be good. Also, the view is expressed that sales have been helped by the improvement in consumer confidence since the election. In addition, good holiday business has left retailers with no burdensome inventories.
District auto sales have also been quite good, with sales gains about in line with the national gains. Large and intermediate models are selling very well; small and compact cars are moving more slowly. Inventories are in line with this sales pattern; that is, supplies of large and intermediate cars are tight and many dealerships have overstocks of smaller models.
Homebuilding in the Ninth District was quite strong during the second half of 1976. District authorizations for new housing units were quite close to 1972's record levels; this is in contrast to a fairly large shortfall nationally. Most of the improved district housing activity was concentrated in the single-family sector, but some gains in multifamily authorizations occurred after midyear.
The district's active homebuilding sector has been partly responsible for the impressive increase in mortgage loans made at district S&Ls during the second half of 1976: up nearly 75 percent from a year earlier. This advance was much stronger than the national increase. However, part of the district's growth stems from a shifting of existing loans to S&Ls from other lenders, since Minnesota's 8 percent usury ceiling on conventional loans was lifted last April. Outstanding loan commitments at S&Ls also climbed impressively in 1976 and during the second half of the year were about 25 percent greater than in the first half.
District labor markets in late 1976 were bolstered by employment gains. Additional jobs checked the rise in district unemployment which had occurred since last spring. These employment gains have occurred in the trade, service, and government sectors; manufacturing employment did not increase, and construction jobs were down from a year earlier.
These positive areas of district activity are in contrast to several weaker sectors. Weather is a source of particular concern to the district's agricultural sector. Not only are last season's drought-induced reductions in production expected to have their full impact on farm spending this year, but many are worried about this year's moisture conditions. Drought conditions have prevailed in the post-harvest months, and the long-range weather forecast predicts lower than normal precipitation for January. As a result, concern is mounting about moisture conditions in 1977. One tactic will likely be acreage diversion from corn to wheat, sunflowers, or other drought-resistant crops.
Low farm prices resulting from record nationwide crops have adversely affected the district's farm economy. However, the cattle industry appears to be stabilizing, so increased beef prices are likely. Unfortunately, increased feed costs could offset this benefit. Since hog producers are planning higher farrowings, the pig crop should increase for the second year in a row. This potential supply would tend to depress hog prices again in 1977.
In addition to affecting agricultural output, recent weather conditions have adversely affected district energy supplies. Much colder than normal temperatures have markedly increased natural gas curtailments in this region and have strained available fuel oil supplies. The fuel oil situation has been termed "quite serious," and current inventories are at the lowest point in five years. Consequently, if cold weather persists in January and February, it is possible that some district businesses would have to disrupt or alter usual activity.
Resort owners throughout the Midwest are suffering from the combination of a scarcity of snow and extreme cold. Despite snowmaking machines in most Minnesota ski resorts, cancellations are running high and business is poor. Lack of snow is also a problem for other businesses which depend on snowmobiling and cross-country skiing.