July 13, 1977
The district's midyear economic situation is quite hopeful, except in the agricultural sector. Retail sales growth recently slowed, but autos are selling well and merchants are looking for a good autumn. Homebuilding is strong. Tourism is excellent. And unemployment has been falling. But, despite better moisture conditions, worries about low ag prices make agricultural conditions a concern. The current expansion in the nonfarm sector and refinancing in the farm sector have boosted loan growth. The strength in loan demand, along with a slowing in deposit inflows, has resulted in some declines in liquidity.
Consumer Spending
Major Minneapolis-St. Paul area retailers report
some slowing in June sales gains after fairly strong sales this past
winter and early spring. Several think this letup was caused by
early June s unseasonably cool weather which cut into summer apparel
sales. Furniture, appliances, and other hard goods, on the other
hand, have been moving quite well in the region s urban areas. But
concern over farm incomes is holding back rural customers' catalog
purchasing. District retailers don't expect a great pickup in sales
in July and August, but their outlook for this fall is quite
optimistic.
A late June survey of district automobile distributors shows recently strong auto sales. Major manufacturers are enjoying sales gains of 10 percent or more above last year's May-June period.
Production Activity
While nonagricultural activity is expanding
quite vigorously, concerns continue about the agricultural
situation.
Homebuilding is strong. District housing unit building permit authorizations (at a seasonally adjusted annual rate) so far in 1977 have risen well above 1972's record level. Single-family units make up much of the renewed growth in housing activity. With the current high level of loan commitments at S&Ls, strength in this market should continue. A significant pickup in the multiunit market over the near term is not likely. Additionally, district nonbuilding and nonresidential construction have improved this year.
Despite this rather bright outlook, capacity constraints could curb further increases in homebuilding. Carpenters are in very short supply in the Minneapolis-St. Paul area. The demand is also strong for roofers, plumbers, electricians, and bricklayers.
The region is enjoying a good tourist season. Minnesota and Wisconsin resorts, full over the July 4 weekend, expect business to remain excellent through July and August.
The agricultural situation is not nearly as encouraging. Prices, rather than drought, are the main concern. Moisture conditions are ample in most of Minnesota and South Dakota. Some dry areas remain in Montana and North Dakota. The weather's dramatic turnaround is maturing crops two to three weeks faster than normal. But prospects of abundant crops and large carryovers will likely exert more downward pressures on grain prices. Feeder and slaughter cattle prices remain at unprofitably low levels too. Hog prices, however, have increased in recent months and should remain profitable through the summer.
Inventories
Although unanticipated weakened sales in early June
resulted in some unexpected inventory build-up, most major retailers
view their inventories as satisfactory. Regional car distributors
consider dealer inventories to be about right in light of expected
sales.
Financial Sector Developments
Mirroring nonagricultural and
agricultural developments, loan demand at district banks and S&Ls
has been strong. The recent strength in homebuilding has brought a
large increase in mortgage lending and no letup is foreseen.
Business loans at large district banks have increased at a 33
percent annual rate during the first half of 1977, compared to a 5
percent increase nationally. This broadly based growth is due to
increased financing of manufacturers stocks and accounts receivable,
of commodity dealer loans reflecting higher soybean prices, of
automobile financing by dealers, and of interim construction. Our
faster rate also stems .from regional banks lending mostly to
smaller businesses with limited financing options. Moreover, due to
last year's drought and falling prices, farmers have felt the need
to renew loans, greatly increasing farm debt outstanding.
As in the nation, time and savings deposit inflows have recently slowed at district S&Ls and banks. Consequently, liquidity positions at district financial institutions have tightened, but no immediate problems meeting the district's credit demands are expected as a result.
Other
Improved district nonfarm activity has influenced labor
markets. This spring's unemployment rate, seasonally adjusted, was
5.4 percent, compared to 6.3 percent in the final months of 1976.
Furthermore, recent increases in both average weekly hours worked in
manufacturing and help wanted advertising point toward further job
growth.