December 12, 1973
The lack of fuel has not yet seriously disrupted District business activity, but businessmen are worried about the future. All District industrial sectors are likely to feel the impact of fuel shortages to some extent, but at this point, the District's travel and winter recreational industries appear to be especially vulnerable. District residents are cooperating with the Administration's efforts to conserve energy, and bank directors hope that gasoline rationing can be avoided. Several directors expressed the view that it is to early to see if the Administration's fuel allocation plans are workable. Public concern over fuel shortages is not expected to dampen Christmas spending in general, but businessmen are concerned about their 1974 sales prospects. District manufacturers look for sizable fourth quarter sales gains and expect further increases during the first half of 1974.
Fuel shortages have not yet curbed District business activity, but businessmen are concerned about the future. A Northeastern Minnesota banker indicated that his area's cement and wood products plants may have to reduce operations and his area's important winter recreational industry is seriously threatened. Furthermore, he believed his area's businessmen have reduced hiring and business spending plans. A South Dakota director disclosed that fuel shortages will adversely affect his state's travel industry. Area motels, for example, are canceling expansion plans and reducing their work forces. Also, transportation problems are being encountered in shipping agricultural products. A Minnesota director whose firm manufactures products for the construction industry was very concerned about fuel shortages, but was even more concerned about obtaining adequate steel and cement supplies.
Major twin cities manufacturers surveyed by this Bank are worried but hopeful that they will have adequate fuel supplies to get through the winter. A Wisconsin director revealed that his community's industries presently have adequate fuel supplies, but their operations could be jeopardized if fuel shortages persist. Montana directors indicated that their state's recreational and tourist industries could be seriously affected by fuel shortages.
According to director responses, District businessmen and consumers are complying with the Administration's request to conserve energy, but it is too early to judge the effectiveness of the Administration's fuel allocation plans. Most directors indicated that their area's residents are driving slower, turning down their thermostats, and eliminating unneeded lighting. Two major utilities serving the District, for example, disclosed that their sales in November were less than normally would have been expected, given temperature conditions. With regard to fuel allocation plans, a major twin cities area retailer indicated that a 25 percent reduction of fuel from a year ago could cause his firm to reduce operations after January 1. Several Minneapolis/St. Paul area manufacturers, on the other hand, stated that the fuel allocation plans should provide them adequate fuel through the winter. Directors expressed general dislike for gasoline rationing and are hopeful that existing measures to curb gasoline usage will suffice.
In general, public concern over fuel shortages is not expected to adversely affect Christmas spending, but District retailers are concerned about 1974 business prospects. A newspaper survey of Minneapolis/St. Paul retailers revealed that they are still hopeful for a good Christmas season. With regard to the first six months of 1974, however, they foresee their sales increasing 5 to 8 percent from a year ago as compared to 13 to 15 percent gains realized in 1973.
A large Twin Cities area retailer disclosed that his firm has not yet noticed that fuel shortages have had an impact on his firm's sales. In the District's agricultural regions, retailers feel this year's high farm income points to a good Christmas season. Two directors indicated, however, that retailers in their area are having difficulty obtaining inventories and could sell more merchandise if it was available. A director from the upper peninsula of Michigan indicated that fuel shortages and the weather may have already dampened his area's consumer spending. Minneapolis/St. Paul automobile sales data disclosed that District consumers are turning to small- and intermediate-sized cars, shunning purchases of full-sized automobiles.
According to the results of our fourth quarter industrial expectations survey, taken in early November, District industrial activity continued to expand. Third quarter District manufacturing sales are up 20.1 percent from a year ago and are expected to advance 14.1 percent in the fourth quarter and about 10.5 percent during the first half of 1974. These gains are larger than respondents anticipated three months ago, and recent price increases are probably one factor which caused respondents to revise their sales expectations upward. A breakdown of manufacturing sales into durable and nondurable goods sales shows that durables increased 23.7 percent in the third quarter and are anticipated to rise 19.5 percent in the current quarter. A 14 percent year-to-year sales increase is expected during the first half of 1974. Nondurable goods sales rose 16.3 percent from a year earlier in the third quarter and an 8.2 percent fourth quarter advance is anticipated; sales gains of 7.0 percent are expected in the first and second quarters of 1974.