Minneapolis Fed Looks at Credit Crunch, Forecasts Continuing Economic Downturn in the Ninth District for 2009
Minneapolis, December 17, 2008— Credit is still widely available to businesses across the Ninth District, but lenders have raised credit standards, according to recent surveys of financial institutions and businesses. Businesses and consumers are also seeking less credit, and those that do are less qualified to receive it.
This situation appears likely to continue, because the Federal Reserve Bank of Minneapolis is expecting the economic downturn to continue well into 2009 in the Ninth Federal Reserve District, which includes Minnesota, Montana, North and South Dakota, northwestern Wisconsin and the Upper Peninsula of Michigan.
“All signs point to declining regional economic activity in 2009,” said Toby Madden, regional economist at the Minneapolis Fed. Employment is predicted to contract, while unemployment rates are expected to rise next year. Recovery in the home building and residential real estate markets may be more than a year away. Inflation worries have dissipated as energy and commodity prices have decreased. Agricultural producers had a good year in 2008, but are concerned about profitability in 2009. District manufacturers noted a slowdown in 2008, and they expect it to continue in 2009.
The annual forecast includes information from the Minneapolis Fed's statistical forecasting models, along with results from annual surveys of business leaders, manufacturers and agricultural lenders in the district.
The outlook for local economies is dismal across most of the district, the worst in the 18-year history of the business leaders poll. Respondents from all areas look for business investment, employment and consumer spending to drop in their communities. They also expect the severe downturn in housing starts to continue, and they see lower employment and capital investment in their own operations. The pessimism is strongest in Minnesota and Wisconsin. While economic conditions have slowed in Montana and the Dakotas, these areas are faring better, in large part, thanks to a relatively strong agriculture sector.
More details on both credit conditions and the economic forecast for the Ninth District can be found in the January issue of the fedgazette, the Federal Reserve Bank of Minneapolis' bi-monthly newspaper.
As one of the 12 Federal Reserve Banks, the Federal Reserve Bank of Minneapolis contributes to a variety of Federal Reserve System functions, including operation of a nationwide payments system, distribution of the nation's currency and coin, supervision and regulation of member banks and bank holding companies, and serving as a fiscal agent for the U.S. Treasury. Additionally, the president of the Minneapolis Fed serves as a member of the Federal Open Market Committee, the monetary policymaking arm of the Federal Reserve's Board of Governors. Together with its branch in Helena, Mont., the Minneapolis Fed serves the Ninth Federal Reserve District, which includes Minnesota, Montana, North and South Dakota, 26 counties in northwestern Wisconsin and the Upper Peninsula of Michigan.