June 15, 1977
Directors report that district business activity is expanding. Consumer spending has been quite good. Recent rains have eased concerns about the drought. District manufacturing activity is advancing. Uncertainty about the Administration's energy program, though, could curb some capital spending. Recent increases in loan demand at district commercial banks reflect an improving district economy. Residential real estate values in the district are much higher than a year ago, and district homebuilding activity is very strong.
Comments from this district's reserve bank directors are mostly favorable. Several directors report that consumer spending has been quite strong in their areas. South Dakota looks for record tourist spending this year. Also, recent rains have helped ease concern about further effects of the drought in eastern Montana and North Dakota, although very dry weather still persists in western Montana. Water supplies there may not be enough to generate the hydroelectric power needed for this summer. And directors say that the prospect of low grain prices is still a concern in some areas.
District manufacturing activity remains quite strong. Manufacturers responding to our second quarter Industrial Expectations Survey foresee year-over-year sales increases of about 15 percent in the first half of 1977. Sales increases during this period are expected to be up around 17 percent for durable goods and 11 percent for nondurables. District manufacturing employment recently has been increasing quite briskly in response to this favorable sales activity. However, most respondents to this survey view their inventories and plant and equipment to be about right in light of expected sales activity.
The Administration s energy program may have affected some capital spending plans. A director whose firm sells control devices used in industrial plants and another who is closely associated with the food industry share similar views. They both indicate that uncertainties about the proposed energy program have delayed some capital spending plans not only in the district but also in the nation. Many directors, however, feel that the President's energy program would have little immediate effect on district farmers and small businesses.
Loan demand has been quite strong throughout most of the district. Some directors point out that mortgage and consumer lending have been somewhat stronger than commercial lending. In the areas that don't depend on agriculture, rising business activity is the greatest cause of improved loan demand. In ag-related regions, loan growth stems in part from farmers having to refinance existing debt. However, a North Dakota director reports that recent rains have helped boost loan demand in his area by improving the local economy's prospects.
Residential real estate values are climbing rapidly throughout the district. The Minneapolis-St. Paul area real estate market is described as "hot." One large savings and loan estimates that home prices are up about 15 percent from a year ago. In Sioux Falls and Rapid City, South Dakota, a director reports, residential real estate prices are up 25 percent from a year ago. And our director from North Dakota describes residential land prices there as "unbelievable." A strong demand for housing as well as increasing costs seem to be the main reasons for these large price increases. With this strong demand for housing, a Minneapolis-St. Paul commercial bank reports that large homebuilders here are looking for a "super" year.
Nonresidential property values are also increasing. Agricultural land values are up throughout most of the district. Land values along the Canadian border of Montana have been increasing very rapidly. Several directors report some speculative buying of real estate, but nothing approaching the high level of speculative activity on the West Coast. Finally, our directors are not aware of any district banks and savings and loan associations making second mortgages for the purpose of acquiring additional real estate.