August 9, 1978
Most district businesses had a good July and, despite short supplies of construction inputs, the economic outlook for the next few months is good too. Retail sales, especially of hard goods, held up or increased throughout the district. Production on and off the farm maintained a brisk pace. Inventories of most goods remained tight but adequate. And financial institutions continued to witness strong demand for credit. But concern over developments in the building sector persists as a shortage of cement has swelled the list of scarce construction inputs. Nevertheless, most observers expect economic conditions in the district to change little during the next few months.
A good July
Our Bank's directors indicated that July retail sales equaled or
surpassed retail sales posted for June in just about every part of
the district. And June was a good month for retailers.
Consumer durables continued to be big sellers. As evidence one director noted an extremely large July increase in installment sales. Also automobile and truck dealers were reportedly moving their stock at very rapid rates.
Our Bank's quarterly survey of agricultural lenders revealed that farmers have be participating actively in this year's retail spending spree. Ninety-eight percent of the agricultural bankers responding to that survey reported that spending by farmers was at or above last year's level.
The reason farmers have loosened their purse strings is a substantially improved income situation. Ninety-five percent of surveyed agricultural lenders said farm earnings were at or above last year's levels. And Bank director's confirm that finding, pointing to high livestock, dairy, and poultry prices and somewhat improved prices for crops.
Farmers and retailers weren't the only businesspeople having a good summer either. A South Dakota director reported tourism had picked up rapidly since July 4 and was running ahead of last year. A Minnesota director said production at his firm was up about 15 percent over last year. And characterizations of industrial activity by other directors ranged from "good" to "booming."
Even though industrial activity has been brisk, most businesses have pursued cautious inventory policies. Thus while one Minnesota director reports some retailers are slightly overstocked and farmers have large quantities of stored grain, for the most part inventories are tight but adequate.
One industry finding itself in an extremely tight "inventory" position is the banking industry. The supply of lendable funds at district banks is barely keeping up with the demand for those funds. These developments have increased bank earnings at the same time they have pushed up the price of credit.
As usual concerns over the well-being of the construction industry have increased with the price of credit. But this month building businesses have been hit with the additional problem of concrete shortages. This shortage, which has affected much of the western U.S., has been exacerbated in our region because equipment failures shut down a large Montana cement plant. The other major cement plant serving the western portion of our district, South Dakota's state- owned facility, is rationing its output amongst customers, allocating each of them about one-half of the amount it purchased last year. This has led some builders to turn to Canada for much- needed supplies.
The outlook is good
Production of cement is due to resume shortly in Montana, so
builders can look forward to some relief from the cement shortage.
Also, while tightness in credit markets is likely to persist and
skilled labor markets have been and will probably remain tight as
well, builders have been able to cope ably with those conditions.
.Furthermore, they have large work backlogs to keep them busy
through the summer and into the fall. So the near-term outlook for
construction, the sector which has been the major concern of most
observers, is really pretty good.
The near-term outlook for other sectors is pretty good too. Directors indicate that retailers are looking forward to strong back-to-school sales in August, farm income prospects for the rest of the year are good, the cautious inventory policies that most retailers and manufacturers have been following should cushion them in the event of a deterioration in demand, and financial institutions are likely to continue reaping the benefits of strong loan demand in the coming months.