August 10, 1973
Many District businessmen disapprove of Phase IV and the continued price freeze on beef which has resulted in shortages. District economic activity continues to expand at a vigorous pace and, according to director responses, District businessmen generally look for business to remain good. Minnesota retail sales in July expanded at a vigorous pace, and no letup in sales growth is anticipated. Loan demand at District commercial banks is strong, and banks are being very selective in making loans.
Bank directors indicated that most District businessmen dislike Phase IV and that the continued price freeze on beef is producing shortages. A South Dakota director associated with the beef industry, however, revealed that the price ceiling on beef is being violated nationwide. In some areas beef producers are ignoring the price freeze, while in others they are placing "wind in the invoice", i.e., billing the customer for more beef than is actually shipped. Another alternative for avoiding the price ceiling on beef is "custom killing", where the meat-packing company's customers purchase the cattle and pay the meat-packing company to process it. A Minneapolis-St. Paul director indicated that businessmen disapprove of Phase IV and don't expect the new controls program to ease shortage problems. Petrochemicals, steel, and beef, he reported, are in short supply in the Twin Cities. Despite emerging shortages, a director disclosed that his area's grocers felt the Government had to do something to curb price increases. Another director expressed the view that Phase IV will hurt businessmen more than they realize if the regulations are enforced. Taking a different position, however, one director said that businessmen are shortsighted and evaluate Phase IV only with regard to their own affairs and without considering how the new controls program can help achieve long-run price stability.
Economic activity was characterized as strong throughout the District and, although some exceptions were cited, District businessmen generally expect business to remain good. In South Dakota, gains in agricultural income are spurring that state's economy, and bumper crops are anticipated this fall. The tourist business in northeastern Minnesota was also described as good. One director reported favorable business conditions in his area but indicated that residential construction will probably taper off as mortgage funds become unavailable. A director from western Montana reported that lumber producers fear a lack of mortgage funds may dampen their business. In addition, because of uncertainty about forest service regulations, lumber producers are hesitant to make capital expenditures. A Twin Cities-area director indicated that economic activity continues strong but that the recent decline in housing starts, combined with a slowdown in automobile sales and an increase in consumer savings, hint at the possibility of a business slowdown. Although no slowdown has occurred in another director's area, local businessmen have expressed some pessimism about the future.
Most Minnesota retailers surveyed in a recent newspaper article disclosed that their July sales gains slightly surpassed the 12 to 15 percent year-to-year increases achieved during the first half of 1973. Part of the recent strength in retail spending, some merchants felt, stemmed from consumers' desire to avoid price increases permitted by Phase IV. Nevertheless, Minnesota retailers do not look for a slowdown in their sales growth during the remainder of 1973. Although prices are expected to continue to rise, survey respondents indicated that Phase IV may help curb price advances.
Bank directors described current loan demand at District commercial banks as strong. Many District banks are being selective in making loans and are not soliciting new business. Two directors indicated, for example, that their areas' banks were refusing applications from marginal customers for real estate loans.