July 18, 1972
Most bank directors and major Minneapolis/St. Paul retailers reported favorable gains in second quarter retail sales and are optimistic about consumer outlays in the third quarter. In the Black Hills, tourist traffic has returned to normal after being disrupted by flooding in early June. Bank directors suggested a variety of reasons for recent low business inventories. Meanwhile, labor disputes have disrupted economic activity in Minnesota. In the opinion of the bank's directors, a tax increase will be necessary next year.
A telephone survey of large Twin Cities area retailers indicated that most second quarter sales met earlier expectations. Four out of five respondents reported sales up between 5 and 10 percent from a year ago, and they expect comparable third quarter advances. Two retailers did report, however, that cool weather had restricted sales of seasonal merchandise. The sales of one discount store chain failed to achieve expectations, and its year-to-year second quarter sales gain was slight. This retailer attributed his poor second quarter to continued softness in the economy and increasing competition.
A telephone survey of Twin Cities area meat and grocery firms revealed strong consumer demand, especially for meat. Food retailers also indicated that future meat prices will depend on overall supplies, as consumer demand is assured, and most felt that higher prices would not significantly reduce sales. This survey, taken just before the announcement of the President's limits on food handler margins, revealed that, in this area, margins were already being curtailed—especially at the retail level.
Outside the Minneapolis/St. Paul metropolitan area, Bank directors reported that most retailers had realized their earlier optimistic expectations and had a good second quarter. Directors from both South Dakota and Montana attributed favorable second quarter sales to high livestock prices and look for further retail sales gains in the third quarter. A North Dakota director reported his area's second quarter retail sales matched expectations and stated that prospects of a good grain crop in his area denoted a strong third quarter for consumer spending. Although retail sales in his area were high, however, one director indicated that second quarter sales did not meet expectations, but he is optimistic about retail spending in the third quarter. A director from the upper peninsula of Michigan said that cool weather had curbed second quarter spending in his area.
Tourism, a major source of retail sales in South Dakota, dropped off sharply after the flooding in the Black Hills on June 9 and 10. According to a state tourism official, visits to Mount Rushmore dropped from a normal daily average of 18,000 to 3,000 a day during the week after the flood. However, by the end of June, tourist traffic was back to normal. Although this June tourist loss is not expected to be regained, improved activity is anticipated for the remainder of the summer.
Bank directors had mixed reasons why their areas' inventories have been low in relation to sales. Small businesses in one area were said to be keeping inventories down because of the high cost of money. Other directors mentioned improved management techniques and recent innovations by farm machinery dealers as attempts to hold down inventories. A South Dakota director attributed his area's low inventories to the fact that business had been much better than expected. According to another, inventories had been low and would remain so because businessmen no longer speculate on them. Due to cool weather in May and June, however, two directors indicated that inventories of summer seasonal merchandise had risen in their areas.
Labor disputes in late June and early July have disrupted District economic activity. In Minnesota, contractors imposed a lockout against workers, and work on major construction projects throughout most of the state has therefore stopped. In addition, the Northwest Airlines pilots are on strike, thus idling about 4,500 Minnesota workers. Non-wage issues are the source of both of these disputes. An additional 1,400 workers are on strike against the Hanna Mining Company because of mine safety conditions at three Minnesota locations.
Given the prospects of a large budget deficit in fiscal 1973, bank directors believe that a tax increase would be necessary next year. One director stated that Phase II would not be sufficient to contain next year's inflationary pressures. Two directors did indicate, however, that a tax boost would probably not be enacted next year, though another considered it politically feasible.