Minneapolis: November 1975

District retail spending improved this fall, and the outlook is good for the holidays. A recent survey of major Minneapolis-St. Paul area retailers reported stronger sales of clothing, home improvement materials, and big-ticket items like appliances and furniture. This sales pickup has made the Twin Cities area retailers optimistic about their sales prospects for the holiday season and next year. One director, whose company manufactures consumer products, indicated that consumer spending has accelerated and stated that his firm's sales to retailers point toward a good holiday season. Directors from outside the Minneapolis-St. Paul metropolitan area reported that fall retail sales have generally been good in their areas and the outlook is for sales to continue strong through the holidays.

Growing strength was apparent not only in general merchandise sales but also in automobile sales. A Montana director described recent automobile sales in his state as "super." A southern Minnesota director reported this fall's auto sales improved after being down this summer, and in western South Dakota consumers have been showing considerable interest in the 1976 models. In addition to the strength in car sales, one director reported that truck sales in his area were up considerably.

Excess inventories have no longer been a problem for many businesses. One Minneapolis-St. Paul area director expressed the view that most businesses have pretty well adjusted their inventories. Two directors indicated that retailers have been cautious about inventories and may encounter some difficulty obtaining merchandise as merchants seek to obtain goods to meet unanticipated demands this holiday season. A western South Dakota director, on the other hand, stated that businesspeople in his area have still been trying to cut inventories.

According to our October Agricultural Credit Conditions Survey, farm income prospects in the Ninth District improved in the third quarter over previous quarters. In this most recent survey, 29 percent of the district's bankers reported farm earnings above year-ago levels; in the first half of 1975, fewer than 10 percent of the bankers reported improved farm earnings.

A number of factors contributed to the recently improved income prospects. High prices from hogs and fat cattle boosted some farmers' profits. Other farmers' incomes were increased by higher dairy prices. Better yields were also a factor in raising farmers' earnings, most noticeably in the wheat belt of North Dakota.

By no means all bankers reported farm earnings higher than those of 1974. Earnings have been down from last year in the flood-ravaged regions of the Red River Valley, and midsummer drought conditions reduced crop yields through areas of South Dakota and southwestern Minnesota. Finally, earnings remained low for the district's cow-calf operators, who are in the second year of an adjustment process that many bankers expect will continue through 1976.

Loan growth—apart from seasonal advances—was much stronger in September and October than earlier in the year at district banks. Part of this increase has occurred in business loans at large banks in the Minneapolis-St. Paul metropolitan area. Outside the Twin Cities the situation has been mixed. Three directors located near the Twin Cities reported that loan growth has been quite strong in their areas. Two cited strong real estate loan demand, and one indicated that installment lending was up in his area. On the other hand, a Montana director indicated no increase in loan demand in his area. The poor outlook for the livestock industry and the lingering effects of the recession are expected to hold down loan demand in western South Dakota.

The October Agricultural Credit Conditions Survey also indicated that agricultural loan demand was not expected to increase in the third and fourth quarters. Short-term loan demand has slowed considerably since the July survey. With earnings slightly improved over the first half of 1975 and with slower farm spending, farmers' financial positions have stabilized. Farmers have been paying off old debts, and refinancing of farm loans has declined. Also, farm credit needs have turned down seasonally. Advance stockpiling of inputs may also be lower than last year, when fears of input shortages appear to have encouraged extensive stockpiling.

With farm income prospects improving, bankers have been viewing farm lending more favorably. Sixty-one percent of the bankers reported that they actively sought new loan accounts during the third quarter, the highest percentage since the second quarter of 1974. Only 8 percent of the bankers reported that they had reduced or refused a loan due to a fund shortage, and only 4 percent anticipated problems meeting loan demand in the coming months.