March 9, 1977
Concern continues to be expressed about agricultural conditions in the Ninth District, but indications are that nonagricultural business is expanding at a fairly strong pace. January and February's cold weather did not have a significant effect on production in this area. In fact, district manufacturing activity is expanding and further increases are anticipated. So far this year, consumer spending in the district has been quite good, and residential building is up in the major urban centers. Nonresidential building, on the other hand, is somewhat weaker.
Farm-related economic activity continues to reflect anxiety about this year's moisture conditions and about low agricultural prices. In those areas dependent primarily upon agriculture, consumer spending is down and farmers are hesitant to make either short- or long-term commitments. Although loan losses have not yet been a problem, rural banks have had to refinance or extend loans. North Dakota bankers are currently encouraging farmers to sell their wheat in order to reduce their debt. A number of directors are concerned that the drought could force some farm operators out of business this year. Profitability in the livestock industry continues to be marginal. Two directors report that the situation was aggravated by January and February's cold weather which accelerated feeding rates and added further to production costs.
In contrast, the Ninth District's nonagricultural sectors have been fairly strong so far this year, and general economic activity has not been disrupted by fuel shortages. Results of our latest quarterly Industrial Expectations Survey, taken in early February, indicate that fourth-quarter district manufacturing sales were up 18 percent from a year before. Furthermore, respondents expect their sales to exceed year-earlier levels in 1977's first, second, and third quarters by 15, 14, and 15 percent, respectively.
Most of the current strength in district manufacturing sales can be attributed to sales of durable goods, which were up in the fourth quarter 23 percent from a year earlier and are expected to advance year over year around 18 to 21 percent during the first nine months of 1977. Nondurable goods sales in the fourth quarter advanced 11 percent over a year ago, and only moderate sales gains are foreseen for the first three quarters of this year.
Manufacturers' evaluations of current inventories and plant capacities have not changed appreciably since the previous survey. They remain basically content with inventory levels and existing plant and equipment in view of expected sales.
Consumer spending in those areas not entirely dependent on agriculture has been fairly good. A major retailer in the Minneapolis-St. Paul area indicates that January and February sales were quite strong and looks for business to continue improving. Several of this Bank's directors report that consumer spending has been satisfactory in their areas so far this year. On the other hand, a large retailer with headquarters in the Twin Cities, reports that sales so far this year "haven't been really great" and doesn't anticipate a big spending surge in the immediate future. One retailer believes that high fuel bills probably curbed some consumer spending but looks for tax rebates and refunds to help bolster consumer outlays in the second quarter.
A healthy amount of expansion in district residential construction is expected for 1977, but it probably won't be as rapid as last year. One director states that low homeowner vacancy rates should stimulate single-family construction in the district. Furthermore, he reports that low apartment vacancy rates point toward a pickup in multifamily construction. However, a Minneapolis-St. Paul area banker does not currently foresee any sizable pickup in apartment building. There is concern in eastern Montana that restrictions on natural gas hookups could restrain residential construction there.
Nonresidential construction during 1977 is not expected to be as strong as residential construction in the district, but it is anticipated to be stronger than nationally. A number of major energy-development projects are under way, such as coal mining and coal gasification in western North Dakota.