September 14, 1977
Despite some trouble spots, the Ninth District's economy is currently quite strong, and directors seem generally optimistic. Several regions are suffering from strikes and layoffs, but employment is up in large urban areas, and more gains are expected. Manufacturing sales gains have been sizable all year, and although they are expected to moderate somewhat, most manufacturers are satisfied with current inventories and plant and equipment. For most farmers, low grain prices are still taking the luster off the expected large harvest, but income prospects have improved for some. As a result, many district consumers have increased their spending recently, and retailers expect good sales this fall. Borrowing has increased too, both to support the expanding industries and the spending consumers and to refinance farm debt.
Employment
Large strikes and layoffs are currently depressing employment in
several district areas. The iron ore workers' strike has cut job
growth in the Upper Peninsula of Michigan and northeastern
Minnesota. And a large copper producer in Upper Michigan has laid
off a substantial number of workers.
But labor market conditions are strong in the large urban areas, according to directors. Employment has grown considerably over last year, and unemployment is down. The Minneapolis/St. Paul area unemployment rate, for example, is currently 5.1 percent compared to 6.5 percent a year ago. Most of the new jobs are reportedly in construction, trade, and service industries. And the prospects for further job growth are considered good.
Manufacturing
Strong manufacturing activity has been providing new jobs too and
will probably continue to, though some easing is expected. After
sales gains of 14 percent over a year ago during the first half,
district manufacturers responding to our latest quarterly survey
think their sales will increase 13 percent in the current quarter,
10 percent in the fourth quarter, and 8 percent in the first quarter
of 1978. Gains in durable goods sales are expected to slow from 16
percent in the third quarter to 10 percent and 8 percent in the next
two quarters. Sales of nondurable goods, meanwhile, should increase
a fairly steady 8 percent.
Despite the overall slowing in sales growth, most manufacturers don't seem to expect any sharp drop in activity: Only electric machinery manufacturers consider their current inventories and plant and equipment capacities excessive through early 1978.
Agriculture
Directors still consider agricultural conditions generally
troubling. Although harvests are expected to be excellent this fall—"spectacular" in some places—prices are very low, so most
farmers' income probably won't match last year's. Recent rains may
have set back North Dakota farmers even further; they have delayed
wheat harvesting and so could substantially cut yields there. The
Administration's plan to cut back wheat production is worrying some
directors, particularly in Montana where farmers have few production
alternatives. And the impact of low grain prices on cattle producers
is still unclear.
Directors do see signs of possible improvement for some farmers, however. Good crops are expected in last year's drought areas, so despite the low prices farmers there could have more cash to spend this year than last. The low grain prices will probably improve the profitability of those who feed grain to dairy cattle, poultry, and hogs. And the pending farm legislation's price supports should help bolster farm income generally.
Spending and Borrowing
Because of the somewhat brighter ag outlook and the strength in
other industries, directors say many district consumers have
increased their spending recently. The labor strikes and layoffs are
depressing spending in Upper Michigan and northeastern Minnesota.
But otherwise both large urban areas and rural communities report
stronger retail sales. And most of the district expects this
strength to continue into the fall.
Bank lending has been quite strong recently too. District consumers and businesses have increased their borrowing, and farmers have gone further into debt.