‹ Back to Archive Search

Beige Book Report: Minneapolis

March 23, 1982

Economic conditions in the Ninth District looked generally the same in February and early March as they have for quite a while: several indicators hinted at recovery, but most remained weak. This time the positive hints came from spending on cars and homes, which picked up a little; spending on winter sports, which remained strong; the costs of manufacturing, which seemed to have eased; and the prices farmers receive for livestock, which increased. The negative indicators still dominated the positives, however. Spending on general merchandise was still sluggish. Manufacturing orders and production declined further. The forestry and mining industries were depressed again. And low grain prices did not improve. Reflecting the economy's general weakness was the continued weakness in bank lending.

Consumer Spending
General merchandise sales have been depressed in the district since last summer, and they did not recover this winter. Three large Minneapolis-St. Paul retailers reported that their sales did increase between January and February, but this increase was only temporary. It merely represented spending which consumers had postponed in January because of bad weather. In early March, sales slumped again. Because of their long sales slump, these metropolitan area retailers said they have been watching their inventories very closely, and lately they have been cutting back on their part-time help, both the number of workers and the hours they work. Outside the Minneapolis-St. Paul metropolitan area, meanwhile, retail sales continued to be very weak, according to this Bank's directors.

Home and auto sales also continued to be very weak this winter, but they showed some signs of recovery. The president of the Greater Minneapolis-St. Paul Area Board of Retailers said that home sales climbed steadily from 125 in the last week of January to 294 in the first week of March—they more than doubled in about a month. Regional sales managers for domestic auto manufacturers said their sales improved between January and February too, partly because of rebate programs.

Spending on winter sports in the district has been strong this season, and it generally remained so in February and early March. At the eastern end of the district, unusually cold weather in January and early February disrupted the good business that ski operators had enjoyed in November and December. However, according to one large Minnesota operator, business picked up again in late February, and he expected his March business to be 50 percent better than a year ago. At the western end of the district, ski area operators enjoyed uninterrupted good business.

Industrial Activity
Manufacturers were not in such good shape this winter: their orders and production continued to decline. As many as 50 percent of the manufacturers responding to a University of Minnesota survey said their new orders declined in the three months ending in February, and nearly that many, 47 percent, said their production declined. These were larger percentages than the 37 and 24 percent that had reported declines in the previous survey. These surveys confirm the declines we have reported in the last few Redbooks as well as Bank directors' comments about current weak manufacturing activity in their areas. Directors said the general weakness stemmed mostly from poor demand for building supplies, consumer durables, and automobiles.

The University's surveys do reveal two developments which indicate that manufacturers' costs may have eased lately and so firms may be better able to recover lost orders and production. One is that the prices manufacturers pay for raw materials and intermediate goods don't seem to have been increasing as fast as they were; the number of manufacturers reporting such price increases decreased between surveys. The other development is that manufacturers appear to have brought their inventories of these inputs (and so the costs of holding them) under better control; in the latest survey, only 25 percent of the respondents said their inventories of purchased goods had increased, whereas 37 percent had said that in the previous survey.

Activity in the district's mining industries also declined this winter, while the forest products industry simply remained depressed. Iron mining, which had showed some signs of recovery in early January, recently weakened again. Although one large iron mining company recalled about 1,800 workers in early March, another laid off 2,100 workers for eight weeks. Besides that, energy production, which had long been a source of strength for the district, weakened recently. Due to the glut in petroleum supplies, oil exploration slowed at the western end of the district. A Montana director said that in early March 100 oil rigs were idle in eastern Montana and western North Dakota. Directors also said that the forest products industry at both ends of the district remained very depressed.

Agricultural Conditions
Recent changes in the prices of farm products indicate possible recovery for about half the district's farmers—those who produce livestock—but not for the other half. Between January and early March, the prices farmers receive for hogs and cattle at South St. Paul rose about 7 percent. One director attributed part of the rise to unusually harsh winter weather restricting the flow of livestock to market. But the price rise may not be as temporary as that explanation would indicate: an economist associated with the livestock industry attributed part of the rise to livestock herds being smaller than anticipated. Crop farmers haven't had to face this ambiguity about their price situation. Cash crop prices at Minneapolis were essentially unchanged between January and early March, and they were considerably below their year-earlier levels. Weak demand seemed to be keeping these prices down, for the largest railroad in the district reported that its grain shipments so far this year were 20 percent behind those a year ago.

Financial Conditions
Bank lending continued to reflect the lack of any significant recovery in the district economy. Loan demand at banks in the Minneapolis-St. Paul metropolitan area was weak in late 1981, and it apparently remained so in early 1982. Loans outstanding at these banks did not change much between January and early March. Loan demand was also weak at banks outside the Twin Cities area, according to Bank directors.