Beige Book Report: Minneapolis
May 14, 1980
The Ninth District economy is closer to a recession than it was a month ago. Since last month, a decline in farm income, combined with reduced lending and spending, has increased the number of firms curbing production and laying off workers. The recession hasn't arrived, though, because investment spending, manufacturing output, and planting intentions indicate district output is still increasing.
The Recession Is Getting Closer...
Our last report stated that the district had been moving toward a
recession, and in April it moved even closer.
In April farm income fell again. Our last report indicated that a combination of falling prices and rising costs was reducing farm income. Farm income fell further last month, as farm prices decreased 4.5 percent between March and April.
In addition, lending declined further in April. Although interest rates decreased, they were still very high, and district consumers and businesses continued to reduce their borrowing. Home loan applications at Minneapolis/St. Paul S&Ls, for example, declined 60 percent from April 1979, following a 30 percent decline in March.
With farm income and lending still falling, spending and production continued to be curtailed in April. Directors report a further decline in the sales of general merchandise, autos, homes, and farm implements. In a large central Minnesota community in April, for example, department store sales were down 10 to 15 percent from a year ago, whereas in March these sales were down 5 to 10 percent. With less consumer and farm spending, some manufacturers' new orders are still falling, and some manufacturers continue to curtail production and lay off workers. Partly as a consequence, Minnesota's initial claims for unemployment insurance in both March and April were up about 50 percent from a year ago.
...But It Still Hasn't Reached The District
Despite the declines in lending, spending, and farm income, the
district still isn't in a recession. For a recession to occur,
investment spending and manufacturing output would probably have to
decline, and they are still expanding. Businesses, for example, are
still investing, as directors report considerable nonresidential
building, both inside and outside the Minneapolis/St. Paul
metropolitan area. Although growth has slowed, directors also report
that district manufacturing output is still increasing. One director
attributes this growth to the district's large number of rapidly
growing high technology firms. Another cause of this growth could be
that the district's biggest manufacturers are defense contractors,
and district defense spending has increased 30 percent in the last
two years.
On the farm, output is also still expanding. District farmers intend to plant 4 percent more acres this spring than a year ago. So far, dry, sunny weather has been helping them achieve this goal. In Minnesota, for example, normally 20 percent of the corn planting is completed by May 4, but this year 36 percent of the corn was planted by that date. With their planting nearly completed, district farmers are now hoping for rain to get the growing season off to an excellent start.