October 11, 1977
Economic activity here is generally quite strong and is expected to remain so. Directors report widespread business expansion and are optimistic: they see few capacity or materials problems, wage increases have not been large enough to lead to production adjustments, and firms have increased capital spending. As a result of this business strength, consumers have been spending more, and retailers expect good sales to continue. The district's two major weak spots are still the iron ore workers' strike and farmers' poor income prospects. Loans to farmers, consumers, and businesses have increased faster than deposits at district banks, thus tightening their liquidity positions.
Business activity
Several directors say business activity is now strong in their
industries and areas. One director reports heavy incoming orders and
a high backlog at his large national manufacturing firm. A director
associated with the food and apparel industries says sales of those
items picked up recently. Energy development is boosting economic
activity in Montana and North Dakota. And business generally is
strong in South Dakota and southwestern Wisconsin.
Directors see signs that this current strength will continue. They see few capacity constraints or material shortages which could limit business activity, and they don't think any recent wage increases have been large enough to reduce it. They also report that district manufacturers are still increasing their plant and equipment spending, which indicates planned expansion. A director who sells control devices for industrial plants says his firm's orders have been rising steadily. Another reports increased capital outlays in the food industry. Spending for energy development in Montana and North Dakota is expected to be substantial too.
Consumer Spending
The current business strength is allowing district consumers to
increase their own spending. Regional auto managers say car sales
have been quite good recently. And major Minneapolis/St. Paul
department and discount stores report excellent business since
summer. Their fastest selling items have been appliances and home
improvement and energy-saving materials and devices.
Most retailers expect consumer spending to remain strong. Some are concerned about shortages—of insulation, for example—resulting from the recent good sales. But they are generally satisfied with current inventory levels.
Iron Ore and Agriculture
The district has two industries with big problems and little
optimism: iron ore and agriculture.
The strike of about 18,000 iron ore workers has been depressing economic activity in northeastern Minnesota and Upper Michigan since August 1. According to recent press reports, the chance of a settlement soon are small.
Income prospects remain small too, for both livestock and crop farmers in the district. Although cattle prices have increased some recently, they are still not high enough to make cow/calf operations profitable. Cattle feeders may be somewhat better off because of the very low costs of grain. But grain farmers' income is likely to suffer from those low prices plus lower yields than previously expected. Insects have been infesting corn crops and rains have been delaying harvesting recently, especially in North Dakota.
One director sees rain as a source of possible relief for ag income, though. Since Canada's wheat yields have also been reduced by rain, and since Russia may need to import more wheat than expected, our grain exports and prices may increase modestly.
Banking
The current strengths and weaknesses of the rest of the economy are
apparent in district banking activity. Loan and deposit growth has
been strong at urban banks, reflecting the strength in the business
and consumer sectors. Because of farmers' income problems, lending
has been strong at rural banks too, but deposit growth there has
slowed. Total loans therefore have grown more than total deposits,
raising the loan-to-deposit ratio of all district member banks from
70 to 73 percent in the last year.