November 10, 1981
Business conditions in the Ninth District were sluggish again in October, as they have been since mid-summer. Consumer spending on durable goods, homes, and autos continued to be weak. Industrial activity also continued to be weak, particularly in manufacturing, forest products, and taconite mining. Agricultural conditions once again were not favorable to farmers. Reflecting this sluggishness in the district's business activity, demand for loans at the district's banks remained at a low level.
Consumer Spending
Consumers continued to be reluctant to spend on durable goods in
October. Sales of nondurables were good, but the decline in durables
dominated. In a recent survey, four major Minneapolis-St. Paul
retailers indicated that their total sales declined slightly in
October, continuing the slow drop-off that began in mid-summer.
Despite this weakening in sales, the major Twin Cities retailers did
not report any excessive buildup of inventories. Weakness in retail
sales elsewhere in the district was reported by our directors. A
Wisconsin director, for example, reported that several retailers in
his community recently went out of business.
Consumers also continued to be very reluctant to purchase homes and autos in October. Home sales, as indicated by mortgage loan applications at Minneapolis-St. Paul S&Ls, remained very depressed, as they have been since last spring. New car sales, according to regional sales managers for domestic automobile manufacturers, remained at September's very depressed level.
Industrial Activity
Additional softening in the district's industrial activity occurred
in October. Manufacturing orders, which were slow in September, were
even slower in October. For instance, orders for building supplies
and automobile parts, which were already depressed, fell further.
One large Minneapolis-St. Paul manufacturer of building supplies
indicated that its October new orders were 10 percent below the
already depressed level that it had been forecasting. The general
decline in orders for manufactured goods has spread to the
district's high technology manufacturers, whose orders had been
increasing until recently. According to local security analysts, the
recent declines in new orders for computers and other high
technology equipment were caused by sluggish capital spending and
the high value of the dollar in foreign exchange. Despite the easing
in orders, district manufacturers do not appear to be having any
excessive inventory problems.
As manufacturing activity declined, so did activity in the depressed forest products and iron mining industries. According to directors, layoffs occurred at taconite plants in northeastern Minnesota and the Upper Peninsula of Michigan during October. These layoffs were in addition to the layoffs that were announced in September. In Minnesota, almost 20 percent of the state's iron ore workers are now unemployed. The lumber mills in western Montana that were closed last month remained closed, and several lumber mills in northeastern Minnesota and the Upper Peninsula of Michigan were also closed in October, according to directors.
Confirming this slowdown in industrial activity was the recent rise in initial claims for unemployment insurance. Minnesota's initial claims, seasonally adjusted, increased 20 percent between September and October.
Agriculture Conditions
Agricultural producers have been hampered by poor weather and
declining prices. Minnesota's harvest, according to the Minnesota
Agricultural Statistics Service, is about two weeks behind its
normal schedule due to wet weather. In addition, farmers experienced
another month of price declines. In South St. Paul, the cash prices
for slaughter steers and hogs declined 5 percent between September
and October, and feeder cattle prices dropped 1.3 percent. In
Minneapolis, the cash prices for corn and soybeans decreased 5.3 and
4.3 percent, respectively. Wheat prices, however, increased 1.7
percent between September and October.
One bright spot is that the district's farmers expect bumper crops. This year's corn harvest is estimated to be 22 percent larger than last year's, and the soybean crop is estimated to be 6 percent larger than it was last year.
Financial Developments
Lending at district banks continued to reflect the sluggishness in
the district's business activity. The amount of outstanding loans at
Minneapolis-St. Paul area banks in October remained at the
lackluster level it has been at since last spring. According to one
Twin Cities banker, some of the demand for loans came from
businesses that had to finance inventories that hadn't moved as fast
as planned—if inventories had been moving, bank loans would have
been even lower. Outside Minneapolis-St. Paul, bankers also
continued to report weak loan demand in October.