September 15, 1976
In early September, several bank directors expressed general concern and uncertainty about how the sustained dry weather would affect District agriculture. The already poor prospects for the corn and soybean harvests have been further reduced, but the wheat harvest was quite good. Directors believed the corn and soybean prices would rise in the coming months as wheat prices remain stable or decline.
The confused cattle industry was expected to continue to feel the effects of the drought too. Dryness and high feed prices helped to increase livestock marketings and further depress fed cattle prices to their current low levels. Directors expected higher corn and soybean prices to make profitable livestock feeding still more difficult. However, as the number of cattle declines, livestock prices should improve.
The drought's full impact on the District's farm economy was considered hard to assess. The big crunch should not come until after the 1976 harvest, but the drought's effects could linger for several years.
Drought conditions were already curtailing consumer spending in dry rural areas. A director from Central Minnesota, for example, felt dry weather had noticeably affected his area's spending in recent weeks, and a North Dakota director said uncertainty about the agricultural situation had cut sales of big-ticket items there. Also, farm implement sales were reportedly off quite sharply in the dry areas of Minnesota and South Dakota.
In areas without drought conditions, however, consumer spending was said to be quite good. One large Minneapolis-St. Paul retailer said that after a disappointing August business picked up in early September. In Western South Dakota retail sales were fairly strong this summer and tourist spending was 20 to 30 percent ahead of a year ago. And two directors reported good auto sales in their areas. Consumer spending was curbed somewhat by layoffs and labor disputes in the Upper Peninsula of Michigan, and tourists there were spending less than in other years. But several directors said retailers in their areas expected a good fall and winter.
Even more strength was reported by District manufacturers. According to our August survey, current dollar sales of manufactured goods grew 20.3 percent over a year-ago in the second quarter, the most since the recovery in this sector began in the fourth quarter of 1975, and this is much more than the gain expected in the previous survey. Manufacturing gains were fairly evenly distributed among durable and nondurable goods industries, which were up 21.6 percent and 18.7 percent, respectively.
Their strong second-quarter sales gains probably caused District manufacturers to revise upward their expectations for the next three quarters. In the previous survey last May, they saw sales gains tapering off in the fourth quarter of 1976; but in the latest survey, they looked for fairly substantial advances over a year ago through at least early 1977: 16.3 and 16.0 percent increases in the last two quarters of this year and a 14.9 percent increase in the first quarter of 1977.
Bank directors unanimously said material shortages were not a problem here in early September. Although some concern was expressed about the long-term situation, energy supplies were considered adequate for the winter. The District's farm implement shortages have substantially eased. One director did report some delays in receiving merchandise, but they were termed not excessive.