Beige Book Report: Minneapolis
April 12, 1977
District economic conditions have brightened considerably in recent weeks. Both housing activity and retail sales have rebounded after weather-induced slowdowns earlier in the year; auto sales, too, have been fairly strong. Recent labor market activity denotes a pickup in district business activity. Although recent rains have helped relieve drought conditions somewhat, the agricultural situation continues to be troublesome.
District homebuilding, which experienced a weather-related slowdown
in December and January, recovered substantially in February, and
its near-term outlook seems bright. Recent Minneapolis/St. Paul
vacancy rates for both single- and
multi-family units are below a
year ago despite the strong housing expansion in 1976. In addition,
outstanding loan commitments at district S&Ls are currently at
record levels. Although savings inflows at mortgage lending
institutions have declined in early 1977, S&L liquidity is still
quite high by recent standards.
Major Minneapolis-St. Paul area retailers report improved sales in March after cold weather depressed sales in January and February. Home furnishing items in particular have been selling quite well, which may reflect the pickup in residential construction. Furthermore, retailers are optimistic about this spring and are satisfied with current inventories. Outside the Minneapolis-St. Paul area, recent rains have made consumers less hesitant to spend, but considerable concern remains about future moisture conditions.
District automobile sales have also been quite good. Regional sales offices report that sales of full- and intermediate-size cars are strongest. Compact and subcompact sales are still weak but improving with recent rebates on certain small cars helping their sales. Vans and, to a lesser degree, pickups are also selling very well.
Another encouraging development in early 1977 has been improvement
in the labor market. The district unemployment rate, seasonally
adjusted, averaged 5.5 percent in
January-February compared to 6.1
percent in the fourth quarter of 1976 and 5.9 percent for the year-earlier period. Unemployment insurance claims, seasonally adjusted,
declined 12 percent between fourth-quarter 1976 and early 1977 while
the help wanted advertising index increased 4 percent. Moreover,
manufacturing employment increased 2.2 percent in early 1977 from
the fourth quarter of 1976, and average weekly hours worked in
manufacturing also increased slightly.
Loan activity at district banks has also picked up during early 1977. Total loans at district member banks increased at a seasonally adjusted annual rate of 19 percent during the first quarter, up from a 10 percent advance in the second half of 1976. The faster growth in early 1977 occurred primarily at large city banks where loans advanced at a 26 percent annual rate and reflected large banks' increased willingness to make business loans. Smaller district banks also reported faster loan growth—from a 12 percent annual rate in the second half of 1976 to 16 percent in the first quarter. This increase reflected greater loan demand—including refinancing of existing loans—at rural banks. Although deposit inflows have recently slowed, liquidity positions at district depository institutions are still adequate and should not be a factor in tightening loan terms.
The agricultural sector is still experiencing stress from drought and low prices. Increased marketings boosted 1976 cash livestock receipts 11 percent over 1975, but low prices depressed crop receipts 23 percent from the year before. Reduced farm income has led to increased borrowing and refinancing, pushing up loan-to-deposit ratios at rural banks. Although recent rains will probably encourage many farmers to proceed with customary planting intentions, abundant wheat stocks and red meat supplies will continue to have a depressing effect on commodity prices at least until midyear. Also, despite recent rains, there are still many areas in the district that continue to have serious moisture deficiencies and farmers in those areas aren't likely to enter the planting season with much enthusiasm.