Beige Book Report: Minneapolis
August 5, 1980
Economic activity has slowed somewhat in the Ninth District, but not nearly as much as in the nation as a whole. And in July the district economy showed signs of strengthening.
Slower District Growth—But Only Moderately
The district has had its troubles lately. Drought and low crop
prices have been hurting farm income. Consumers have been hesitant
to buy much of anything, but especially homes and cars. Firms in
some industries have thus been receiving fewer orders and have
responded by cutting back output and laying off workers. As a
result, lending has weakened at district banks and savings and loan
associations.
Despite these troubles, though, the district has been outperforming the nation. In the second quarter, the seasonally adjusted unemployment rate was 6.0 percent in the district compared to 7.5 percent in the nation. Consistent with that, most Bank directors report that economic activity has been considerably stronger in their communities than nationally. Much of this difference can be traced to the smaller impact the depressed auto industry has had locally. Measured by the number of people the industry employs, auto production accounts for just 2 percent of the district's economic activity, but a full 6 percent of the nation's.
July's Signals of Strength: Higher Crop Prices...
The district economy may stop slowing soon, for in July all the
district's trouble spots showed some improvement.
The farm sector is still suffering from the drought. Some of the district's crops and grazing lands have been irreversibly damaged by the hot, dry weather. North Dakota farmers, for example, are expected to harvest only 15 bushels of durum wheat per acre, about half as much as last year. The district's corn and soybean crops, however, could still be quite good if they get adequate moisture in August.
In spite of the drought, farm income in the district has stopped falling. This is mainly because the prices that farmers are getting for their products leaped between June and July. In Minneapolis, for instance, average cash prices (per bushel) increased from $2.52 to $2.82 for corn, from $4.19 to $4.55 for wheat, and from $5.95 to $6.94 for soybeans. Farm income was also buoyed in July by the administration's increased price supports for these products.
...Freer Spending, Fewer Layoffs...
District consumers seen to have started to recover in July, too.
Although not yet considered strong, sales reportedly improved last
month at retailers in Minneapolis-St. Paul and other parts of the
district. Home buying also picked up in July, according to Bank
directors. But new car and truck buying did not - though it didn't
fall any further either.
The freer consumer spending has given manufacturing activity a boost. Two large Minneapolis-St. Paul manufacturers report a larger- than-seasonal increase in new orders between June and July. While business at those firms may not be back up to the level a year ago, across the district production cutbacks have slowed and so have layoffs. In Minnesota, for example, the average number of initial claims for unemployment dropped from 6,400 to about 5,000 per week between June and July, a time of the year when these claims usually don't change at all.
...and More Lending at S&Ls
This improved activity has not yet reached banks; their lending
remained essentially unchanged in the last month. It has, however,
reached savings and loans. Reflecting the pickup in home sales,
mortgage loan applications at Minneapolis St. Paul S&Ls increased 63
percent between June and July.