March 15, 1978
Despite the coal strike, economic activity in the Ninth District is fairly strong, and most of it will probably stay that way into the spring. The coal strike has not hurt this region because it relies little on eastern coal. Unless the strike produces secondary effects, district manufacturers should maintain their substantial first-quarter sales gains. Consumer spending has been good to normal except in western rural areas, and retailers expect strong sales this spring. Consumer demand for mortgages is still high too, but recent increases in mortgage terms caused by slowing deposit inflows could reduce housing somewhat.
Because little eastern coal is used in this region, the coal strike is not affecting output in the Ninth District. Most of this region's coal comes from western fields which have not been shut down during the United Mine Workers' strike. Consequently, this region's utilities and other coal users currently have not had to reduce operations.
But the coal negotiations have already affected wage demands here, and if the strike lasts much longer it could affect other economic activity. A large union currently negotiating with a major food processing firm cites the Carter-supported wage package in the coal talks as justification for demanding a very large wage increase this spring. Also, if the strike continues for several weeks, district manufacturers may have problems selling goods in eastern markets and getting inputs produced in strike-affected areas.
So far, though, with no unusual energy supply problems, district manufacturing sales seem to be up substantially from a year ago. In mid-February manufacturers responding to our quarterly survey thought their first-quarter sales would be up about 11 percent from a year earlier. Sales of durable goods were expected to be up 13 percent and sales of nondurables up 9 percent.
If the coal strike ends soon, sales should remain well ahead of a year ago, and inventories should be adequate into the spring. In February, district manufacturers expected a 12 percent increase in the second quarter with durable goods sales up 15 percent and nondurable goods sales up 7 percent. In light of their present and anticipated sales, manufacturers were generally satisfied with their inventories.
Consumer spending so far this year is also quite good over much of the district. Auto dealers in the Minneapolis-St. Paul area indicate that sales are holding up fairly well, even though midwinter is usually a slow time of year. Retailers in the Twin Cities say non- durable goods are selling about as well as they usually do at this time of year. Directors from the Upper Peninsula of Michigan and northwestern Wisconsin report fairly good retail spending in their areas too.
But in rural areas of the district's western states, retail sales are down more than seasonally. Directors from Montana, North Dakota, and South Dakota report that severe winter weather has been holding back retail sales gains in their areas. The weather has affected sales of both durable and nondurable goods.
Despite these weather-related problems, retailers throughout the district are optimistic about the second quarter. In Minneapolis-St. Paul, retailers expect the usual good spring sales. Besides the normal seasonal pickup, retailers in western areas think they will make up some of the durable goods sales put off by bad first-quarter weather.
Consumer demand for housing has remained strong, but because of tighter mortgage terms it may weaken soon. District S&Ls still report a high level of mortgage loan commitments, indicating a sustained demand for housing. However, slower savings inflows reduced the supply of mortgage funds recently. To help offset that slowing, some S&Ls increased their borrowings from the Federal Home Loan Bank Board. And, because of the tighter supply of funds and the sustained mortgage demand, most S&Ls raised mortgage interest rates and tightened other mortgage loan terms. If this tightening continues, district homebuilding may slacken soon.