Beige Book Report: Minneapolis
May 20, 1970
Although indications of softening in the Ninth Federal Reserve District are not as apparent as in the rest of the nation, various pieces of quantitive and qualitative evidence suggest that the rate of District economic growth has at least slowed down. At the same time, however, there does not seem to be any diminution in the inflationary psychology of area residents. Consumers apparently are cutting back on their level of consumption, and scattered instances of businessmen either postponing or at least stretching out some of their capital expenditures are being noticed. Currently, a number of construction workers in the District are on strike and indications are that most of these strikes will last for awhile. Information relating to the Teamsters' strike is very sketchy, but it appears that some firms are beginning to be affected.
During the go-around at the last meeting of the Board of Directors of the Federal Reserve Bank of Minneapolis, the directors generally felt that business conditions were softening. As evidence of these observations, the directors cited such things as unemployment increasing in their areas, retail sales becoming sluggish, businessmen hesitating to build up inventories, and an almost universal observation of slowing in auto sales. In addition, one director was aware of a case where a steel company supplying the auto industry has cut back its orders of iron ore pellets. One director, on the other hand, observed that lumber and wood products manufacturers in western Montana have become optimistic in their expectations of sales during the latter half of this year. These producers were severely affected by the downturn in housing construction, but not expect their sales to increase with the anticipated upturn in housing.
In spite of the business slowdown, the directors felt that inflationary psychology has not abated in their local areas, but that recent events in Indochina have not had a discernible separate effect on inflationary psychology. They also felt that people are concerned not only with the effect of inflation, but also with all other areas of unrest in this country. One director addressed himself to the discriminatory impact of inflation. Although he was careful to point out that the problem was also due to other factors, he felt that farmers are feeling the ill effects of inflation while not sharing in the benefits. For example, he said that while farmers recently have had to pay more for input items, the prices of their products have not increased accordingly. As a result, the profits of farm operations have fallen off.
Scattered pieces of information suggest that area businessmen may be postponing or at least stretching out their capital expenditures. During the first three months of this year, the valuation of building permits issued for nonresidential building in the Ninth District were about 9 percent below the comparable year-earlier period. After adjusting for cost increases over the past year, this implies that nonresidential building activity is about 16 percent below a year ago. In addition, one director was aware of a manufacturing firm in his area that has set back the letting of contracts from 60 to 120 days. Also, a Minneapolis-based milling and food related conglomerate reported recently that they had cut back their capital expenditures. During the current fiscal year they expect to spend about $5 million for fixed capital, an amount down substantially from the $8.2 million spent last year. Two cases were cited at the recent directors meeting, however, which are expected to lead to increasing capital expenditures. In one case, it was stated that a railroad based in the Ninth District would have to expand its capital expenditures to take advantage of the economies of scale inherent in a recent merger of four lines. In the second case, a copper producer in the Upper Peninsula of Michigan has undertaken a housing program which, when completed, will double the size of the town in which the mine is located. The ostensible reason for the new program was to shorten the commuting time of workers, for a number of their employees are now commuting daily from points 50 to 100 miles away.
Major construction contract negotiations are underway in two sections of the District. In Minnesota about 10,000 to 12,000 workers are currently out on strike and about 15,000 to 20,000 workers are directly affected. Although some disputes have already been settled, the majority of union contracts expiring this spring are still in the process of negotiation. In general, completed negotiations call for wages to increase by more than 50 percent over the next two years. The strikes still in progress are expected to continue throughout the next three to four weeks.
In the highway and heavy construction sectors, the carpenters and Teamsters have settled, but the operating engineers appear to be a long from settlement. According to a recent newspaper article, operating engineers in Minnesota reportedly turned down an offer that would increase their wages by 55 percent over the next two and a half years presumably because of union dissatisfaction regarding the timing of the increases. In the building construction trades, a number of strikes are still in progress and probably will not be settled for at least three to four weeks.
In South Dakota, contract negotiations are underway in Sioux Falls and Rapid City, the only unionized areas in the state. All building construction has been shut down in Sioux Falls as a result of a strike by the operating carpenters are in the process of negotiating new contracts, but are still working. The unions are requesting wage increases of about 15 to 20 percent per year over the next three years as opposed to the 10 percent to 12 percent per year increase received at the time of the last settlement three years ago.