April 9, 1975
Early 1975 brought a deterioration in District economic activity, and the immediate prospects are for a further decline. District unemployment rose markedly in the first quarter and is expected to climb even higher. District residents were not very optimistic about the economic outlook. These developments affected consumers' outlays, and retailers reported small first quarter sales gains. However, contrary to the general trends in the District's economy, resort owners had a good winter, and look for business to remain strong. Also, savings inflows at S&Ls improved, though a rapid recovery in District housing construction is not foreseen.
Even though the District's unemployment rate has not risen as far and as fast as the nation's rate, District joblessness increased conspicuously in early 1975. The District's seasonally adjusted unemployment rate was 6.4 percent in January/February, contrasted to 5.8 percent in the fourth quarter of last year. Other District indicators point toward further rises in unemployment. District initial claims for unemployment insurance in the first quarter were up 41 percent from a year ago, and help wanted advertising in January/February was down 31 percent.
The attitudes of District residents reflected the softening in the economy. According to results of a newspaper poll taken in early March, 58 percent of the respondents described the United States economy as "pretty bad" and 19 percent used the term "very bad." With regard to future economic activity, 54 percent anticipated "pretty bad times" and 14 percent expected "very bad times" over the next twelve months. One encouraging result from the survey, however, was that the percentage of respondents anticipating "pretty good times" during the next twelve months increased from 19 percent in early January to 26 percent in early March.
Adverse economic developments made District consumers reluctant to spend. Major Minneapolis/St. Paul area retailers reported a lackluster first quarter. Sales gains in dollar terms were not large, and in some instances unit sales were down from twelve months earlier. Large appliance sales were particularly hard hit, while do-it-yourself merchandise sold quite well. This year's long winter and early Easter adversely affected spring clothing sales. Furthermore, much of the sales activity that existed did so as a result of price reductions—which in turn cut profit margins.
Interestingly, discount stores did better than department stores, and stores in rural areas did somewhat better than those in the Minneapolis/St. Paul area. District retailers, in general, indicated that inventories were in good shape and that they were beginning to buy goods in smaller quantities and replenish their stocks more often. Consequently, retailers believe they can hold their own, but they do not look for any immediate improvement in sales. In fact, in order to maintain profit margins one major retailer has developed contingency plans to reduce personnel and other costs in case sales fall off more than anticipated.
Contrary to the general trends in the economy, District resort owners had excellent business this winter. Part of the reason can be attributed to good snow conditions and acceptable temperatures which made for excellent skiing and snowmobiling. Further, consumers did not seem to mind the higher prices at ski areas, and ski equipment sales were excellent despite the softening in consumer spending. Looking ahead to this summer, resort owners are quite optimistic, and in some cases reservations and inquiries for this summer are ahead of comparable figures for last year.
The first quarter's substantially stronger savings inflows at mortgage lending institutions brightened the District's prospects for a housing recovery in the months ahead. Although liquidity positions at District S&Ls were still weak, loan commitments increased perceptibly. Recovery is not likely to be rapid, however. In a recent survey of interim construction financing, senior loan officials of several commercial banks in the Minneapolis/St. Paul SMSA indicated that the loan demand from builders of multifamily housing was not strong. Moreover, banks were not eager to make new multifamily loan commitments because of the fear of both the cost overruns and the other problems that beset builders in 1973 and 1974.