October 13, 1971
With the exception of a pickup in automobile sales, Ninth District consumer spending has not changed noticeably since President Nixon announced his new economic program. Directors of this Bank, however, feel that retailers in their areas expect good sales in the latter half of the fourth quarter. Results of our latest agriculture credit conditions survey reveal that farm incomes have improved in recent months, but there is some doubt as to whether these higher income levels will be sustained.
Bank directors in general felt that the President's tax proposal would have a positive effect on business activity. They were uncertain, however, as to whether modifying the proposal to grant more tax relief to consumers would achieve greater fiscal stimulus. Most felt that the investment tax credit was necessary, and one director indicated that it would be particularly beneficial in the long run.
Several directors reported improved new car sales, and this was confirmed in a survey of nine regional automobile sales managers whose areas included Minnesota and the Dakotas. New car sales in August and September were up approximately 37 percent from a year ago in South Dakota, North Dakota, and Minnesota, and this sales gain occurred after the 15th of August. New car sales during the entire month of August only matched year-ago levels, while in September they surpassed 1970 sales by around 85 percent. There seemed to be a majority opinion that the prospect of a repeal in the automobile excise tax has stimulated car sales. Two of the nine sales managers, however, felt its effect had been minimal, while another felt the freeze had been more important in stimulating car sales than the proposed repeal of the excise tax. Also, District consumers are reported to have been favorably impressed by the 1972 models.
Bank directors were guardedly optimistic about business activity in the fourth quarter. Most reported that retailers in their areas were looking forward to a good Christmas season. Many felt that the level of fourth quarter economic activity would be significantly affected by the public reaction to Phase II. Local conditions in certain areas of the District, however, will have more influence than the President's economic program. Areas in Montana and upper Michigan are still feeling the effects of strikes against two large copper producers, although disputes were settled in late September. One director, who looks for a good fourth quarter, attributes it to good crop conditions, rather than the President's program.
The District's farm income situation seems to have improved further recently. Good harvests have swelled farmers' stocks of saleable commodities, and the price outlook for the District's fall crop of feeder calves from western ranges is generally thought to be excellent. According to this Bank's latest agricultural credit conditions survey, District farm earnings (which include cash receipts, the value of stored products, and items in the process of production) have improved noticeably since midsummer. By the end of September, record wheat harvests had been completed, and even though local prices were down due to the general abundance of wheat and the West Coast dock strike, the overall improvement in productivity more than compensated for the price losses.
The overall picture of District farm income, however, obscures the problems of some farmers. In late summer, many of the District's cornfields in southern Minnesota and eastern South Dakota suffered crop damage due to dry weather, a problem which was compounded by low corn prices. Hogs, which are important in the same areas of the District, have also brought low prices. Unfortunately, the current strength in farming and ranching has not caused increased business activity in the industries supplying agricultural inputs. Farmers have again grown cautious in purchasing input items, especially machinery and equipment. District bankers indicated that this caution was partially responsible for some softness in the demand for intermediate-term agricultural credit. Comments received in our agricultural credit conditions survey revealed that recent declines in product prices were causing farmers to evaluate their possibilities for new resource commitments more critically.
The survey also indicated that farm earnings for the final quarter of this year are not expected to be as high as they were in the third quarter. Crops yet to be harvested as of October 1 were in poorer condition because of the dry weather; and the high feeder cattle prices, which currently indicate high incomes for the District's ranchers, will subsequently be a profit-squeezing cost to District cattle feeders. A few survey respondents even speculated that District feedlot operators would not be able to bid as much for input cattle as operators in other areas, resulting in a decline in District feeding.