September 20, 1983
With the exception of a dip in real estate and related activities, the economic recovery continues despite higher interest rates. Consumer spending for general merchandise and autos has not declined much from the torrid pace reported in our last report. Tourism has finished the summer on a good note. Some bright spots continue to turn up in manufacturing. The outlook for district crops has improved, due to favorable changes in local weather, the federal Payment-In-Kind (PIK) program, and higher prices. However, higher corn prices have hurt livestock profits. Financial activity appears normal. The weakest spot in our economy continues to be raw material extraction and processing. Due to the rise in interest rates, though, real estate and related activities have begun to weaken somewhat as well.
Consumer Spending
Retail sales of general merchandise apparently have continued at a
healthy rate. One large Twin Cities retailer reports an "excellent"
August, posting a sales increase of mere than 20 percent. Sales of
home and office furnishings were strong for that retailer. The back-
to-school promotion went well for another large local retailer. The
fall outlook is good for a diversified retailer, with big-ticket
items buoying sales that were somewhat slowed by the hot August
weather. Higher interest rates notwithstanding, retail credit sales
are showing substantial strength over comparable periods a year ago.
Southern Minnesota and North Dakota retailers have reported good
sales to our Bank's directors, although some retailers in South
Dakota and parts of Wisconsin have reported flat or lagging sales,
due to local conditions.
Van and recreational sales led the way in producing healthy automotive sales figures. District managers for domestic auto producers report good increases in both truck and passenger car sales over last July and August. Vehicle inventories are lean. This good news was corroborated by our Bank's directors, who reported good auto sales in southern Minnesota, in parts of Wisconsin and the Dakotas, and even in economically troubled northern Minnesota.
Tourism
Tourism continued to show the strength evident in our last report.
One senior tourism official in Minnesota says that August was
excellent. He feels that the outlook for fall is good also. The
economically depressed Upper Peninsula of Michigan had a good
summer, with Mackinac Bridge traffic higher than last summer.
Inquiries about the "fall color season" are also up. Similar
sentiments are reported in the 26-county Indianhead region of
Wisconsin, which expects to finish the season with tourism up 10 to
12 percent over last year.
Manufacturing
Manufacturing activity is generally good throughout the district. A
recently released survey of our largest manufacturers shows that
twelve of them posted a second-quarter increase in earnings, while
only five suffered a decline. Two district paper companies are very
busy. One of them just hired 50 more workers, and the other is
contemplating an expansion. Two large computer industry
manufacturers recently announced lucrative new contracts. An
aluminum pot line was added to a plant in Montana, the first such
expansion at that plant in several years.
Agriculture
Recent increases in corn and soybean prices are combining with the
federal PIK program and better weather to spur farm income in this
district. The Minnesota farm price index rose 8 percent, reaching
its highest level in two years. Corn and soybean production is
looking pretty good in Minnesota, where favorable weather is
expected to produce yields well above the national average. However,
these crops are not doing as well in southeastern and east central
South Dakota, where bad weather and woolly worms are taking their
toll. Wheat production is generally good in South Dakota and
Montana, and wheat prices are running from 10 to 20 cents higher
than last year, Livestock profitability is being gutted by high corn
prices, though, and some wheat is being substituted for corn in
cattle feed. Also, a recently implemented federal dairy production
assessment is hurting dairy farmers.
Financial
District bank lending and deposits both increased last month.
Deposits and loans in Twin Cities banks grew by 3.5 percent and 5.2
percent, respectively. Comparable country bank growth figures are
smaller. One bank director thinks that there may be some slack in
country bank lending, due to recent interest rate increases.
Raw Material Extraction and Processing
These industries are still lagging behind economic recovery,
primarily because of structural problems. One director reports that
delivered iron ore pellets from Brazil, for example, are cheaper
than pellets from district plants. Two more large taconite plants in
northern Minnesota announced closings this month. At around 15
percent, the unemployment rate in the Duluth-Superior area of
northeastern Minnesota is the highest among all metropolitan areas
in the five state Upper Midwest. Oil drilling is still down in North
Dakota and Montana. In fact, the Williston Basin now has only about
40 active rigs; it had about 60 last spring. Demand for lumber was
also down somewhat. Recent price declines for wood products
illustrate this weakness. One sawmill operator thinks that demand
would be stronger if interest rates fell, and stimulated more
construction activity.
Real Estate
Recent interest rate increases have begun to slow real estate
activity. Single-family home sales have fallen off in the Twin
Cities. The condominium market also slipped. Builders, realtors and
mortgage lenders all attributed this to recent increases in interest
rates. Some scattered bright spots in residential construction are
noted, though, with Billings, Montana, Sioux Falls, South Dakota and
Rochester, Minnesota not being much affected by higher interest
rates yet. While commercial construction has also been slack, one
Twin Cities contractor notes that overcapacity may still be
contributing to this.