Beige Book Report: Minneapolis
December 14, 1977
Despite some business uncertainty, the Ninth District economy is quite healthy in late 1977. Both retail and manufacturing sales are expanding briskly. Mortgage funds are available to support the district's current high level of homebuilding. And the region's two weak areas, iron ore mining and agriculture, are slightly improved. However, directors' comments indicate that uncertainty about the Administration's economic policies is holding back some investment spending.
Strong retail and manufacturing sales ...
Consumer spending is strong in most of the district. Two major
Minneapolis/St. Paul area retailers report that recent sales either
have met or exceeded their fairly optimistic expectations, and
another says business is currently "pretty good." Directors also
report strong retail sales outside Minneapolis/St. Paul, except in
areas affected by the iron ore workers' strike and in smaller
communities where farm income is down considerably.
District manufacturing sales are strong too; overall they are stronger than expected. During the first nine months of this year, manufacturing sales were up about 14 percent from a year ago, but in August manufacturers expected only a 10 percent increase in the fourth quarter. In November, however, manufacturers reported a fourth-quarter sales gain about the same size as the rest of the year (with durable goods sales up 17 percent; nondurable goods sales, 11 percent). This pickup in business has not resulted in any inventory shortages or capacity problems. It has, though, increased manufacturing employment about 4 percent over a year ago.
... and homebuilding
Homebuilding is another important source of strength for the
district economy. A record number of building permits has been
issued this year for residential dwellings. Also, last month's
concerns about disintermediation have not materialized, so funds are
still available to accommodate a high level of homebuilding.
Although some sophisticated investors have shifted funds from
savings deposits to higher yielding money market instruments, this
Bank's directors report that higher interest rates on U.S.
government securities have had little effect on the growth of time
and savings deposits in their communities.
Improving iron ore mining and agriculture
Not only are the district's strong sectors still expanding, but the
two weak sectors look better than they did last month. The striking
iron ore workers appear to be closer to reaching a settlement;
several locals have already signed contracts. Ending these disputes
would do much to boost economic activity in northeastern Minnesota
and the Upper Peninsula of Michigan. In the other trouble spot,
agriculture, the subsidy payments to farmers under the recent farm
legislation are being made this month. They should help offset some
of the current weakness in district farm receipts. In fact, a
Montana director thinks December wheat subsidy payments in his
county will total about $8 million. This would be about $20,000 for
a farmer with an average-sized farm.
Business uncertainty
Even though the district's economy is currently quite strong,
uncertainty about the Administration's economic policies is
dampening plant and equipment spending. Two directors associated
with large manufacturing firms say uncertainty about the tax and
energy programs is holding back some investment outlays. And a
regional economic survey by a director's large Minneapolis bank
found that a lack of confidence was limiting investment spending in
the Minneapolis/St. Paul area.