July 14, 1976
Several Ninth District economic indicators weakened in the second quarter. Growth rates for retail sales were down considerably from the first quarter. The seasonally adjusted unemployment rate for the District rose slightly in May to 6.0 percent. Housing permits fell from the first quarter rate. Manufacturers responding to the bank's latest quarterly Industrial Expectations Survey revised their sales expectations downward from the previous Survey. Business investment still had not picked up by early July, and as was true in June, capacity constraints still were not a problem in this District. Finally, the District's agricultural situation improved from the previous month.
The growth rate for retail sales in May-June was down substantially from the early months of 1976. The year-over growth rate through April had been about 25 percent. But nearly all firms reported smaller gains in May and June, and some firms said that sales were slightly less than in 1975 (May and June retail sales in 1975 were robust in this District). Some retailers even felt that stocks had become larger than desirable, in light of the recent dip in consumer spending.
Sales appeared weakest in the District's rural areas—perhaps due to widespread drought conditions. Sales in the Twin Cities have been stronger, with some stores still experiencing increases over last June of nearly 20 percent. Nonetheless, most increases were smaller. A firm which operates stores nationwide said, for instance, that its June sales in Minnesota were about 10 percent above last year compared with its national sales gain of 6 to 8 percent. A representative of the firm said that the 10 percent gain was better than had been anticipated overall. Retailers—even those with lower June sales than in 1975—continue to be optimistic about the second half.
Among individual products, autos continued to move well. Intermediate and full-sized models were selling best. Short stocks of intermediates and specialty models were common. Tourism was doing well in the District and resort owners expected sellouts in July and August. The drought caused sales of some items—such as lawnmowers—to fall, but caused sales of irrigation equipment to rise.
District labor markets weakened in the second quarter, according to several seasonally adjusted indicators, although quarter-to-quarter comparisons of seasonally adjusted data are perhaps misleading due to the unusually mild first quarter in the District. The unemployment rate edged upward to 6.0 percent of the labor force, from 5.7 percent in March. Employment, seasonally adjusted, leveled off after several months of increase; actual employment growth was substantial and total employment was up about 3 percent from 1975. The volume of help-wanted advertising indicated a continuing strong demand for labor. Manufacturing employment turned up in May and was about 2 percent above the trough of last winter.
April data on housing permits indicated that sector also tapered off from first quarter performance, though the unseasonably warm winter again makes interpretation of data difficult. The slowdown was not merely statistical, however, and builders have expressed disappointment at the rate of new home sales in recent weeks. They attribute the slowdown to buyer resistance to new homes' prices and to the recent upturn in interest rates. S&Ls are liquid, so that there is no evidence of a scarcity of mortgage money in the District.
Manufacturing sales gains in the second and third quarters may be lower than expected and lower than first quarter advances. Manufacturers said that first quarter sales were 15 percent above last year, and they projected second quarter sales at 13 percent above 1975, down from an earlier projection of 16 percent. Manufacturers said that current inventories are at adequate levels in light of future sales.
Business investment spending remained soft in the District; the current dollar value of nonresidential construction awards was only slightly above 1975. Excess capacity still exists in most sectors, so that there is little incentive to make capital outlays at this time. In addition, manufacturers still have some doubts about the staying power of the recovery: for example, one manufacturer in the District says that his firm has been postponing spending proposals for several months due to an uncertain outlook.
In the District's farm sector, crop conditions improved from a month ago. Rains boosted prospects in areas afflicted by the spring drought. On balance, yields in the District will likely be lower than trend, but crop conditions varied widely in the District. Moisture supplies were still extremely short across western Minnesota and eastern South Dakota. But the remainder of Minnesota's corn and soybean crops were in fair to good condition as of late June, with some areas even reporting excellent conditions. Row crop growth in Minnesota was greater than normal; however, frequent rain will still be needed to carry crops through to maturity. Small grain yields in Minnesota were harder hit by drought than corn or beans. Crop conditions were mixed across North Dakota, the major producer of spring wheat. The Montana winter wheat crop, on the other hand, is in generally good condition, though yields will be down slightly from last year.