Beige Book Report: Minneapolis
December 10, 1980
Last month, the Ninth District's recovery was again sluggish. Between October and November, general merchandise sales and manufacturing production expanded very modestly, mining activity remained weak but showed signs of improving, and car and home sales declined. Mirroring these weaknesses was the continuing sluggishness in commercial bank lending. Agricultural conditions, however, were quite strong, even though price changes were mixed.
Consumer Spending
Consumer spending remained sluggish. November's gains in general
merchandise sales matched October's modest increases, according to
bank directors and major Minneapolis/St. Paul retailers. Not only
were consumers hesitant to purchase general merchandise, but they
cut back their auto and home purchases. The modest pickup in car
sales noted in our last Redbook report did not carry over into
November, as bank directors and regional sales offices indicate that
car sales declined between October and November. Home sales, which
have been declining since September, also fell last month, as the
dollar value of mortgage loan applications at Minneapolis/St. Paul
area S&Ls dropped 25 percent.
Industrial Production and Inventories
Industrial activity also continued to be sluggish. Bank directors
report that manufacturing production rose modestly in November as it
did in October. This is consistent with a University of Minnesota
survey which indicates that Minnesota manufacturers have been
increasing production, but not enough to start hiring more workers.
This slow growth, directors believe, stems from recent interest rate
increases pushing up inventory costs and causing businesses to cut
back on their ordering. Unlike manufacturing activity, mining
activity has at least been improving, although it is still slow.
Iron ore inventories have been reduced enough in the Upper Peninsula
of Michigan so that iron ore production was increased modestly in
November. And in Montana, the copper mining strike which began July
1 was settled in November.
Financial Developments
Because the district's recovery continued to be sluggish, bank
lending continued to be weak. Directors from outside the
Minneapolis/St. Paul area indicate that their areas' banks still
have plenty of funds to lend, and that lending did not pick up in
November. In the Twin Cities, banks also have funds to lend, but
loans outstanding at commercial banks did increase modestly between
October and November.
Agricultural Conditions
In contrast to the sluggishness elsewhere, farm conditions were
generally strong. Last summer and early this fall, good growing
conditions and rising crop and livestock prices boosted farm income
considerably. The income of crop farmers, who account for about half
of the district's farm income, continued to rise in November. In
Minneapolis between October and November, the average cash prices
for corn and wheat rose about 5 percent, and for soybeans 9.6
percent. Farmers have been able to take advantage of these higher
prices, as no transportation bottlenecks have been encountered.
Despite the sizable increase in crop prices, however, district gains
in farm income were probably held down somewhat by declines in
livestock prices. In St. Paul, the average cash prices for cattle
and hogs fell about 5 percent between October and November.