Beige Book Report: Minneapolis
December 16, 1981
The slump in business activity that the Ninth District has been experiencing since midsummer deepened in November and early December. Consumer spending remained depressed; new manufacturing orders continued to decline, with consumer durables and home building supplies hard-hit; the iron mining and lumbering industries weakened further; and falling farm prices continued to plague agriculture. The continued softness in the district economy has kept bank lending depressed. The one bright spot is that the winter sports industry has been buoyed by above-normal snow.
Consumer Spending
The slow drop-off in general merchandise sales that began in
midsummer continued. In November, the four large Minneapolis-St.
Paul retailers that we survey reported that poor sales of large
durable goods continued to depress general merchandise sales. All
four also indicated that early December sales were disappointing and
inventories are now higher than desired. To encourage holiday
buying, these retailers have been holding sales promotions earlier
than usual. According to our Bank directors, general merchandise
sales outside the Minneapolis-St. Paul metropolitan area were also
weak. The only durable goods reported as strong sellers were high
technology products like video tape recorders and big screen
televisions.
Consumers were still very reluctant to purchase homes and autos. The Minneapolis Board of Realtors reported that home sales in Minneapolis and suburbs declined 15 percent between October and November. New car sales in November, according to regional sales managers for domestic manufacturers, remained at September's depressed level.
Spending on winter sports appears to be the exception to the general sluggishness in the district's consumer spending. A lack of snow during the last two winters hurt businesses dependent on snowmobiling and skiing. While Montana still needs snow, in Minnesota early snowfall is about 12 percent ahead of normal and spending on winter sports has been good. Sales of tow tickets at one major northern Minnesota ski area, for example, are up 30 percent from of a year ago.
Industrial Activity
Our Bank directors reported that declining orders have led to
cutbacks by many manufacturers in the district. Manufacturers of
consumer durables and building supplies indicated that they have
been particularly hurt by falling demand. For example, a large
district manufacturer of household freezers reported that its new
orders began slowing in mid-August. Inventory build-ups at its plant
and dealerships have induced it to cut production and lay off one-half of its workers. A manufacturer of microwave ovens stated that
business has been "rotten" for the last six months. The firm has
laid off about a third of its workers and is concerned about high
inventories. A large Minneapolis-St. Paul manufacturer of building
supplies, which had reported a sizable sales decline in October,
reported an even bigger decline in November.
The iron mining and forest products industries also remained in the doldrums. In November, the unemployment rate for Minnesota's iron ore workers remained at around 20 percent. Likewise, sawmills throughout the district that were closed in October remained closed through December. In Montana, of 56 sawmills, 16 are closed and 20 have curtailed operations.
Agricultural Conditions
Falling prices continued to trouble district farmers. Prices for
district farm commodities, which have generally been declining since
late 1980, fell again in November, except for wheat prices. All
prices, including those for wheat, were considerably below their
year-earlier levels. Cash livestock prices in November at South St.
Paul, for example, were down about 10 percent from a year earlier,
and cash prices at Minneapolis for wheat, corn, and soybeans were
down 9, 24, and 28 percent, respectively.
The falling prices for grains and soybeans can be attributed to abundant supplies and falling demand. As reported in our last Redbook, district farmers had bumper crops this fall. But the markets for these crops haven't been strong. Grain shipments going east on the Great Lakes totaled 3.2 million tons in October this year as compared to 4.2 million tons in October last year. Shipments west by rail also were reportedly down this fall.
Financial Developments
The softening in the district economy continued to show up in weak
bank lending. Outstanding loans at Minneapolis-St. Paul area banks
in November remained at last spring's lackluster level, and Reserve
Bank directors indicated that loan demand was very sluggish in most
areas. In addition, several directors noted an increase in personal
and small business bankruptcies.