Beige Book Report: Minneapolis
June 30, 1981
Although sluggishness persists in the Ninth District, signs of improvement occurred in May and early June. The signs of improvement were many:
Consumer spending, particularly for merchandise, continued the improvement it began in April.
Industrial activity improved as suggested by an increase in manufacturing firms' new orders and by the settlement of construction strikes.
Late spring rains have improved growing conditions, and crops are off to a good start.
Despite these improvements, farm prices and auto sales in May and early June were disappointing after showing signs of improvement in April, and mining and lumbering remain weak. These weaknesses continue to be reflected in sluggish bank lending.
Consumer Spending
The district's consumers continue to be less hesitant to spend than
they were in March. Our last report indicated that general
merchandise sales increased somewhat more than seasonally in April,
and this improvement has continued. Two major district retailers
reported sales gains in May and early June and indicated that sales
exceeded expectations. Directors from Minnesota and Montana also
reported that general merchandise sales have continued to improve.
Not only are consumers spending more in stores, but they are
traveling more, for reports from Minnesota and the Upper Peninsula
of Michigan indicate a more-than-seasonal pickup in tourist spending
in May and early June.
This pickup in spending, however, does not extend to autos and homes. A regional sales manager for a domestic automobile manufacturer indicated that in May and early June, car sales returned to their depressed pre-rebate levels after improving in April. Home sales did not drop, but did not improve; mortgage loan applications at Minneapolis-St. Paul S&Ls in May and early June were unchanged from April's depressed level.
Industrial Activity and Inventories
Like consumer spending, industrial activity showed signs of
improving in May and early June. Manufacturing orders have
increased. Our last report indicated that gains in some
manufacturing firms' new orders were being offset by declines at
other firms. But 46 percent of the respondents to a recent
University of Minnesota survey of Minnesota manufacturers reported
increases in new orders in May, 35 percent reported declines, and 19
percent reported no changes. Most of these firms also said that they
had no buildup of unwanted inventory, and several reported that the
prices they paid for inventories had either stopped rising or had
declined. Construction activity has also picked up as the strikes,
which had shut down many Minneapolis-St. Paul area construction
projects since early May, were settled in mid-June.
In contrast to the improvement in manufacturing and construction, mining and lumbering remain in the doldrums. A Montana director indicated that the forest products industry in western Montana continues to operate at 60 percent of capacity. Similarly, in northeastern Minnesota and the Upper Peninsula of Michigan, some iron ore mines remain closed and others are operating only part of the time.
Agricultural Conditions
Improved growing conditions have coincided with the improvements
elsewhere in the district, but farm prices remain a concern. At the
time of our last report, substantial portions of the district were
still experiencing drought. Rains came to most of these areas in
late May and early June, and crops throughout the district now are
off to a good start. Although crop prospects have improved, farm
prices haven't. After increasing in April, cash grain and livestock
prices in Minneapolis and South St. Paul, except for slaughter
cattle and hogs, either remained the same or declined between April
and May. All these prices remain well below the highs attained late
last year. The continuing weakness in grain prices stems from export
sales being low; for example, an economist for a major Upper Midwest
railroad indicated that his firm's grain shipments to West Coast
ports have been less than anticipated.
Financial Developments
Although there are signs that the district's business activity may
see some improvement, it remains sluggish at the moment. Recent loan
growth is consistent with this overall assessment. Loans at
Minneapolis-St. Paul area banks in May and early June remained at
April's lackluster level, and outside the Twin Cities, bank
directors reported no pickup in bank lending.