Beige Book Report: Minneapolis
August 18, 1982
Previously reported weaknesses in district economic activity have persisted through the summer. So far, the only important evidence we see of the consumer-led recovery predicted by many economists is a strong showing in tourism and vacation spending. Consumers have remained unwilling to spur the district economy stepping up their purchases of merchandise, homes, and motor vehicles. Manufacturing orders and production have continued to shrink this summer, and the already depressed lumber and metal mining industries have suffered additional blows. While district crops have benefited from superb growing conditions., this has been a mixed blessing at best, primarily serving to aggravate farmers price problems. Confirming these weaknesses has been a continued decline in new bank loans. Demand to roll over existing credits has been strong, but much of this lending activity must be attributed to borrowers' liquidity problems.
Tourism
Tourism accounts for approximately 7 percent of district
nonagricultural employment, and this summer it has been the one
bright spot on our otherwise dreary economic landscape.
In the western half of the district, tourism is oriented to travel and sightseeing (the Black Hills, Mount Rushmore, Glacier National Park, for example), and these activities have been expanding lately. In North and South Dakota, state tourism directors report that tourism in June and July was up about 3 percent from 1981 levels, and 1981 was itself a good year. In Montana, poor weather held down spending by tourists in May and June, but the state tourism office indicates that business in July and early August was much improved, well ahead of a year ago. These vacation areas are far from major population centers and primarily reached by automobile. Thus, industry sources attribute much of the improvement to the recent easing in gasoline prices.
Tourism in the eastern half of the district has been respectable this summer, but not as strong as in the western half. Resorts, fishing, camping, and the like dominate the eastern area's tourism business. Resort operators and trade association officials in Minnesota, northwestern Wisconsin, and the Upper Peninsula of Michigan indicate that business has been up from a year ago at some resorts, down at others. This spottiness is attributed largely to reduced group entertaining by corporations and, in some areas, to poor weather.
Other Consumer Spending
While consumers have been willing to spend on vacations, they have
continued to be reluctant to make other purchases. An economist for
a locally headquartered national retailer reports that his firm is
"waiting but still hopeful." Major department and discount stores in
the Minneapolis-St. Paul area report that weak sales (reported in
recent Redbooks) continued into July. Specialty store revenues have
also been flat. A national book retailer, headquartered in
Minneapolis, terms its summer sales as "soft," and a large
Minneapolis company with several specialty retailing subsidiaries
characterizes recent sales as "weak." Federal Reserve Bank of
Minneapolis directors report that merchandise sales outside the Twin
Cities area have also been soft.
Consumers have remained wary of big-ticket items such as homes and motor vehicles. According to the Minneapolis Board of Realtors, July home sales in Minneapolis and its suburbs were down 25 percent from the already depressed level of a year ago. Furthermore, after reporting in our last Redbook that motor vehicle sales had strengthened modestly in May and early June, regional sales managers indicate that sales turned down again in July.
Industrial Activity
Accompanying weak consumer spending has been a continuing decline in
manufacturing orders and production. District manufacturers of toys,
housewares, and cosmetics report that retailers have simply not been
ordering this summer. Also, orders received by district paper
manufacturers have been "weakening rapidly," according to a director
associated with that industry. Until recently, this was one of the
district's strongest manufacturing sectors.
Lack of demand has continued to reduce production as evidenced by more layoffs announced in early August: a Minneapolis clothing manufacturer, 30 workers; two Minneapolis-St. Paul computer manufacturers, 73 workers; a St. Paul manufacturer of heavy equipment, 270 workers; and a South Dakota meat-packer, 600 workers.
Lumbering and mining have been further depressed this summer too. Not only has weak construction activity continued to hold down lumber production, but directors report that unseasonably heavy summer rains at both ends of the district have interfered with logging operations. Also, several iron mining companies extended their previously announced shutdowns, (discussed in our last Redbook). Iron ore production at district mines this year is now projected to total 35 million tons or less, well below the 50 million tons that industry sources were estimating in early June.
Agricultural Conditions
Good growing conditions in the district and elsewhere have driven
down crop prices and exacerbated the problems confronting farmers in
the district. The threat of cold and wet weather in the spring did
not materialize, and prospects now are for record harvests in the
Ninth District. However, local storage facilities are full to
capacity from previous harvests, and many farmers are not eligible
for price support loans on this year's crops. For example, only 25
percent of Minnesota corn producers are eligible for price support
loans. The threat of this fall's bumper crops forcing large amounts
of grain on the market has sent corn and soybean prices tumbling
from already weak levels.
To compound district farm problems, farm stored grains in Minnesota are reported to have above average amounts of insect infestation and mold this year. If those reports are true, some Minnesota farmers will have difficulty getting even these poor prices for privately stored grains.
Financial Developments
Recent bank lending has reflected these weaknesses in the district
economy. A Minneapolis-St. Paul banker indicates that new bank loans
at metropolitan area banks have "drifted down" through the summer.
Outside the metropolitan area, the poor farm economy has been
slowing debt repayment. At the end of June, 43 percent of the rural
bankers responding to our Agricultural Credit Conditions Survey
expected the demand for farm debt refinancing in their area to be
greater than normal in the third quarter. Moreover, 62 percent
characterized the current rate of debt repayment as slow.