Beige Book Report: Minneapolis
September 16, 1985
Employment conditions have weakened a bit this summer, while very recent signs indicate some firming of consumer demand, particularly for housing. The district's agricultural outlook has remained gloomy, increasing the anxieties of agricultural lenders. Performance in natural resource-related sectors has been mixed.
Employment
Employment conditions have deteriorated a bit in the Ninth District.
Seasonally adjusted employment in the district fell a few thousand
between June and July. Minnesota's seasonally adjusted unemployment
rate rose to 5.7 percent in July, due in part to layoffs in
manufacturing and mining. Also, a temporary layoff at an iron mine
in the Upper Peninsula of Michigan just began. But the unemployment
rate in South Dakota stabilized at 5.3 percent in July, while
Montana's unemployment rate fell to 6.4 percent. South Dakota,
however, was hit in September by a strike at a large meat packing
plant in Sioux Falls.
Consumer Spending
Retail sales of general merchandise appeared to pick up a bit in
August. One large district retailer reports that its department
store sales in August were better than expected, being 16 percent
above sales a year earlier. Another large retailer considers its
sales very good, buoyed by back-to-school sales of junior wear. Both
retailers report that late payments were up slightly, though.
District Bank directors report that while retail sales were
generally good in larger diversified cities, they remained low in
smaller, agriculturally dependent cities and towns.
Factory low-interest financing has continued to spur sales of motor vehicles. One domestic manufacturer's car sales in this region increased in July and August to levels 15 percent higher than a year earlier. This high rate of sales has left its inventories at low levels of less than one month's supply. In Great Falls, Montana, dealers for all three major domestic manufacturers experienced sales hikes two to three times greater than normal for this time of year.
Housing activity appears to have revived somewhat. Home sales in Minneapolis increased 34 percent in July and 27 percent in August over levels a year earlier. The inventory of unsold homes there is 12 percent less than it was a year ago. After dropping in June, residential building contracts in Minnesota were 39 percent higher this July than last July. District Bank directors' reports yield a mixed housing picture in the rest of the district. Sales grew in Sioux Falls and Rapid City, South Dakota, but were flat throughout the rest of the state as well as in North Dakota. While a large inventory of unsold homes remains in Rochester, Minnesota, a record number of housing permits have been issued around Iron Mountain in the Upper Peninsula of Michigan.
Agriculture
The dismal district agricultural economy has not improved, however.
Both farm prices and profits remain low.
In fact, farm prices fell further recently. The Minnesota farm price index fell again in July, to 14 percent below its low level of a year ago. Soybeans registered their lowest price since January 1983. Cattle and calf prices also fell. Summarizing the meat animal business as "terrible," a Bank director from Montana notes that both fat cattle and hog prices are so low that losses are unavoidable.
Despite recent rains, crop conditions haven't improved much. At the end of August, the U.S. Department of Agriculture declared 55 of Montana's 56 counties disaster areas. Net farm income there is the lowest it's been since the Great Depression. Other parts of the district are too wet and need some warm, dry weather to foster development and harvesting of the would-be bumper crops.
Finance
Total deposits at banks, thrifts, and credit unions fell just a bit
between late July and late August. Some Bank directors note that
bank liquidity is still more than adequate, but that good lending
opportunities are hard to find in agricultural areas. Another
director points out the deepening worries of agricultural-dependent
bankers.
Resource-Related Sectors
Mixed news comes from the district's natural resource-related
sectors. A major favorable development is the U.S. Energy
Department's decision to keep the large coal gasification plant in
Beulah, North Dakota, operating at least until next spring, saving
thousand of jobs. Another paper mill will start operating this
December in the Upper Peninsula of Michigan, but other mills in
northern Minnesota have taken some downtime due to softening demand
and import competition. While waferboard plants are running at full
bore, poor prices have idled oil and gas drilling in Montana and
western North Dakota.