Beige Book Report: Minneapolis
August 7, 1979
The Ninth District economy is still not in a recession, but problems in several industries continue to threaten it. District nonagricultural output continues to expand, and the region's labor markets have not softened. However, energy-related problems, a slowdown in consumer spending, and a softening in housing markets remain troubling. And agricultural earnings are now worrisome.
The district economy is still not in a recession
The decline in nonagricultural output that accompanies a recession
has yet to occur in the Ninth District. Directors in the Upper
Peninsula of Michigan, Wisconsin, Minnesota, and South Dakota say
that industrial output in their areas remains strong. Considerable
investment spending is also occurring; during the first half of
1979, nonresidential construction contract awards in these areas
were up about 25 percent from a year earlier. And in Montana and
North Dakota, energy exploration and mining are boosting output.
Furthermore, the softening in labor markets that characterizes a recession has not happened here. Layoffs at Minneapolis/St. Paul firms are no higher than a year ago when the number of initial claims for unemployment compensation was low. In fact, many district employers are still seeking workers, for district newspapers continue to carry a record amount of help wanted advertising.
But last month's threats to the economy are still here All of the troubling developments reported last month remain, however.
Even though the trucking strike has ended and fuel supplies are more plentiful than last month, concern about energy is still restricting activity in two district industries. The energy situation continues to hold down travel.
Although business is now better than in early July, directors from tourist areas report that anxiety about gasoline availability is continuing to keep many tourist-related businesses from even matching last year's sales. In South Dakota, for example, this summer's tourist business is expected to be down about 35 percent from a year ago. The energy situation also continues to hurt auto dealers. Worries about gasoline availability and price are still causing large car sales to sag, and dealers' inventories are mounting. Two directors believe that the situation is serious enough to start driving dealers out of business.
But, just like last month, cars aren't the only thing people have been hesitant to buy. In recent weeks about 10 percent fewer customers than a year ago have been shopping at the Minneapolis/St. Paul area's major shopping centers. And directors from other areas say their communities' retail sales continue to be weak.
The housing industry is still slowing too. Fewer people are buying homes; Minneapolis/St. Paul area mortgage loan applications are down substantially from a year ago. As home sales slow, the number of new and used homes on the market continues to climb. And a few homebuilders are beginning to run out of work.
A new concern
Since last month, a new problem area has developed in the district:
farm income.
Grain producers' earnings have been hurt by a recent labor dispute. A month-old strike by Duluth/Superior grain handlers is seriously aggravating an already seriously strained grain transportation system. Thus, at a time when grain prices are high, district farmers are having trouble moving their crops to market. The situation will worsen as farmers attempt to store and market what is expected to be a good harvest. According to Minnesota's governor, one-third of the Upper Midwest's wheat crop could be lost because of overtaxed storage and transportation facilities if the strike isn't settled soon.
The earnings of other ag producers have been hurt lately too. According to Montana and South Dakota directors, recent drops in cattle prices are significantly reducing livestock producers' profitability. And a Minnesota director says that recent price decreases are also cutting hog and poultry producers' earnings.