Beige Book Report: Minneapolis
September 12, 1979
Although the national economy appears to be in a recession, the Ninth District economy remains relatively strong. Last month, our report indicated that the district's economy was not yet in a recession, but that several developments were threatening it. The consumer and agricultural sectors, in particular, are still worrisome, but a strong industrial sector is allowing the district to avoid a recession.
Consumers Buying Less
District consumers are still reluctant to spend. Several directors
indicated that retail sales, which were weak in July in comparison
to a year ago, continued to be weak in August. Close to half of the
merchants responding to a University of Minnesota survey also
reported that their sales were down from a year ago. Even in South
Dakota, where the dollar value of retail sales was about equal to
what it was a year ago, fewer goods were sold.
Auto and home sales continue to be weak, too. In August, car sales fell below year-earlier levels, as they did in June and July, and large car inventories are still excessive. District consumers likewise continue to be hesitant to purchase homes; in August the number of homes listed for sale was up substantially from a year ago.
Farmers' Earnings Threatened
The agricultural sector, like the consumer sector, has problems.
District farmers' earnings are threatened by transportation problems
and poor weather. Last month a grain handlers' strike at
Duluth/Superior aggravated the district's already strained grain
transportation system, and this dispute has yet to be settled. Even
if the grain handlers begin working soon, the remaining shipping
season will not be long enough to move all the grain that would
normally have been shipped from this port. This grain will have to
be either stored or shipped overland to other ports; either
alternative raises costs and reduces earnings.
Farmers' earnings also could be reduced by smaller-than-expected crops. A month ago district farmers were expecting a good harvest, and many still are. But in Minnesota, the district's largest crop- producing state, wet and cloudy August weather has kept crops from maturing, and an early frost now could substantially reduce crop yields.
No Recession in Sight
Despite the continuing weaknesses in the district's consumer and
agricultural sectors, the district's economy is not yet in a
recession. None of the signs usually associated with a recession
have yet appeared in the district.
In a recession, firms normally lay off workers, but many district firms are now scrambling to hire additional ones. Some labor markets are so tight that one large firm distributed handbills throughout its community calling for more workers.
In a recession, business earnings normally decline, but this hasn't happened. For the second quarter, the profits of the district's 41 largest companies were up from a year ago—29 percent this quarter.
In a recession, business requests for loans let up, as businesses consolidate operations. But directors report that the demand for loans remains strong at district banks, as many firms continue to expand.
Industry Doing Well
Probably the main reason the district is not in a recession is that
industrial sales are so strong. Manufacturers responding to our
Industrial Expectations Survey reported that their second-quarter
sales were up 17 percent from a year ago and that they look for a 15
percent gain in the current quarter. Directors from throughout the
district indicate that industrial activity remains strong in their
areas, confirming the survey's results.