November 2, 1983
The recovery is continuing in the Ninth District, although it no longer appears to be gaining momentum. With the harvest of major cash crops almost complete, farm earnings seem unlikely to slow the pace off the recovery. The strength of consumer spending is also consistent with continued recovery. The employment picture still looks good as well, and there is some scattered news of expansion in manufacturing and mining. However, no clear trend is evident in district financial activity.
Agriculture
For the most part, district agricultural conditions continue to
promise healthy farm earnings. While corn may not contribute to
earnings as much as previously thought, income from soybeans looks
better than expected, and the outlook for wheat is also good.
Livestock profits continue to suffer, but some improvement is
anticipated.
The expected yield for corn in Minnesota was recently revised downward 9 percent because of corn borer and windstorm damage. This represents a loss of $132 million at current prices. Even though Minnesota's corn harvest is down about 45 percent from last year's level, corn still ranks as the state's largest cash crop and is expected to bring receipts of $1.35 billion. One reason for the reduced harvest, though, is the PIK (payment-in-kind) program, which will swell farm income. This will partially offset the losses due to the small harvest.
Soybean yields in Minnesota and South Dakota are exceeding expectations, and prices remain good. Many Minnesota farmers are reporting yields well in excess of the previously forecast 31 bushels per acre, and a Bank director reports that South Dakota yields are around 35 bushels per acre. Soybean prices are also strong, in part due to low crop output in much of the rest of the nation.
The wheat crop has been generally favorable in Montana and North Dakota. Bank directors report that the yields were good in eastern Montana and excellent around Bozeman. Wheat prices are generally running a little higher than last year in Montana. While the amount of wheat harvested in North Dakota was below the ten-year average, its protein content and overall quality were good.
Although livestock operators are continuing to be hurt by high corn costs and low cattle prices, they are expecting some improvement. The outlook for feeder cattle in Montana "may not necessarily be too bad," according to one Bank director. But livestock prices are still low. Reflecting these low prices, our recent survey of Ninth District rural bankers indicates that pasture and grazing land values fell 4 percent from March to September.
Consumer Spending
Consumer spending for general merchandise, motor vehicles, and
housing appears to be maintaining the strength evident last month.
Retail sales in the Ninth District seem to be holding firm. A prominent bank holding company economist states that "we've seen considerable strength, much stronger than the nation," in the Twin Cities retail scene. One large Twin Cities retailer reports September sales 23 percent higher than last September. Another big Twin Cities chain reports a 20 percent increase for this 12-month period, its "biggest increase in many years." Also Bank directors report brisk retail sales in the rest of the district.
The district's motor vehicle sales are also strong. For one large domestic manufacturer, truck sales were 23 percent higher and auto sales 7 percent higher this September than last. Auto sales in South Dakota were up 15 percent over the sane period. bank directors report that auto sales are going well in Montana and are up in economically depressed Upper Michigan, too.
While housing activity may have slackened from its torrid pace of earlier months, it remains better than a year ago. In August, residential building contracts in Minnesota nearly doubled; compared with last August. The Minneapolis Board of Realtors reports that 25 percent more housing units were sold this September than1ast. But many homes. have been pulled off the Twin Cities market in recent weeks due to lack of demand.
Employment
While the evidence is mixed, the most recent statistics indicate
that the district employment picture is stable. In August, Ninth
District employment rose only slightly to a seasonally adjusted 3.12
million, and the unemployment rate also rose a bit to 8.15 percent.
However, a regional economist for a large area bank believes that
the strike by 8,000 AT&T workers could have accounted for the
smallness of the employment increase. Minnesota unemployment claims
rose substantially in August, but a state analyst believes that the
seasonal adjustment was "so atypical it would throw everything off."
The unemployment rates in North and South Dakota were only 4.2
percent and 4.3 percent, respectively. The Sioux Falls SMSA recorded
an unemployment rate of 3.2 percent, which was the nation's lowest.
However, some parts of the district continue to report problems. A
large manufacturer in Upper Michigan recently announced a big
layoff, and northern Minnesota's recovery lags behind the rest off
the state's.
Manufacturing and Mining
There are some signs of expansion in these vital sectors. The good
news in Minnesota is Ford Motor Company's decision to increase
employment by 270 workers soon and to spend $250 million expanding
its St. Paul assembly plant, which will create another several
hundred permanent jobs. Also, printing and writing paper
manufacturing facilities in the district are currently running at
100 percent capacity. While about half the plants in northern
Minnesota are still inoperative, an iron pellet plant in that area
is hiring back a large number of workers this month. Finally,
although a Bank director finds that coal production was a little
lower in Montana this August than last, he notes that oil and gas
activity increased somewhat.
Finance
Financial sector activity is not moving strongly in either
direction. District bank deposits and loans were down in September,
but they appear to be rebounding in October. Our recent surrey of
district rural bankers Indicates that in the third quarter the
demand for new agricultural loans remained low to normal. It also
indicates, however, that at the same time the demand for refinancing
of existing ag loans—though still somewhat above normal—dropped
sharply.