July 21, 1971
Judging from the responses of the directors and branch directors of this bank, consumer spending in the District has increased over the last month. At the same time, savings flows to commercial banks are still relatively strong, although there are indications that some tapering has occurred at reserve city banks. Unions in the District do not seem to have tempered their wage demands in recently settled wage contracts or current bargaining sessions. The demand for agricultural loans seems to have abated over the past few months.
Retail sales in various parts of the District seem to be strengthening, and a few directors felt that retailers in their areas were optimistically looking at the future. Most responses were that retail sales in June and early July were better than in May and considerably above a year ago; a number of directors were aware of June sales by individual retailers in their areas which were more than 15 per cent above a year ago. Those directors who felt that retail sales had not risen, particularly in Montana, were careful to point out that retail sales in their areas were relatively strong in earlier months this year and therefore would not be expected to rise dramatically.
There appear to be divergent trends in various components of retail sales. Soft lines seem fairly strong, while consumers apparently are limiting purchases of durable goods and luxury items.
Savings patterns in the District seem to be diverging as well. With one exception, savings flows to District banks outside the Twin Cities continued as strong in June as in earlier months this year. The one exception was in the Sioux Falls area, but the slowing, according to one banker, was not really enough to mention. Savings flows to reserve city banks have slowed, however. One director noted a savings run-off at a reserve city bank following the July 1 interest crediting period and inflows during early July which were a little slower than in previous months.
With a number of major labor contracts currently being negotiated in the District, it does not appear that union wage demands have eased. In upper Michigan, the contract between the White Pine Copper Company and the United Steelworkers is scheduled to expire at the end of July, and negotiations began earlier this month. It was not possible to learn what terms are being considered, as neither negotiating team was willing to divulge this information. In the Twin Cities, a strike by sand and gravel haulers, which began during the first weekend in June, seriously curtailed construction activity until early this week. The union asked for an increase of $3.00 per hour over the next three years, but was content to settle for $2.75 over the three-year contract period. 'This was essentially the same size of settlement that other construction unions have won over the past two years.
The Anaconda Company, with a Montana employment in excess of 6,000, was struck on July 1, but the directors from that area were optimistic about the duration of the strike. The company has offered a 32 per cent increase in wages and fringes over the next three years, but this was rejected by the union. Although it was not possible to determine the counter offer, the directors felt that unsettled issues were more concerned with work rules and productivity problems than with the size of the offered wage increases.
Partially reacting to the high rate of unemployment in the area, unions in the La Crosse, Wisconsin, area seem to have lowered their sights somewhat and have been accepting contracts calling for wage increases of about 6 per cent. This philosophy has not permeated the construction industry, however, where laborers and carpenters are currently striking for a 12 per cent pay increase.
Demand for agricultural loans at banks in the Ninth Federal Reserve District has moderated somewhat in recent months, according to our latest agricultural credit conditions survey. This phenomenon has occurred as a result of the improved flow of farm income during the second quarter which lessened the strong need for short-term loans. On the other hand, the demand for long-term, or real estate, loans has increased because of a decline in long-term interest rates. These declining rates have been particularly effective in encouraging more loan requests due to the backlog of farmers' long-term spending plans.
Bankers seem to expect that the overall farm credit demand will continue somewhat lower. These anticipations reflect both the recently improved farm income situation and the expectation that farm incomes will continue to improve. Some respondents expressed caution in this outlook, however, pointing out that higher incomes were the result of currently high prices for several important farm products, and that it was very possible that these prices could fall over the next few months.