October 11, 1978
No significant changes in either the economic or financial condition of the Ninth District were observed this month. The vital signs of the region are favorable, and respondents to this month's Redbook inquiry are basically optimistic. Inflation continues as the major economic concern, since current interest rates are doing little to slow loan demand.
Throughout the district, industrial production is characterized as "reasonably favorable" to "very good." A gradual slowing of growth rates is expected, in part because comparisons are now being made with months which were very good last year.
The heady pace of residential construction has moderated slightly as compared with last year. But commercial construction activity remains hectic.
Ag production is proceeding nicely this year. Record small grain crops are reported in North Dakota. The excellent yields and higher ag commodity prices, especially for livestock and dairy, should improve farm incomes this year. Grain hauling was somewhat impeded by the rail strike, but this was not a serious problem.
Inventories are characterized as "normal" to "manageable," and virtually no one is seeing any buildup. Our observers consider an inventory induced turndown very unlikely because of the conservative stocking policies being followed by area businesses.
There are still some reports of cement shortages, but the problem is not as acute as it was last month.
Retail sales are generally reported as "normal," "good," or "strong" throughout the region. There are spot reports of softness in nondurables, but big ticket items are strong and auto dealers are happy. Most observers think retailers are quite optimistic about the fourth quarter. The improvement in ag earnings is sustaining implement sales and otherwise boosting economic activity in rural communities.
Ag banks in the district continue to report heavy loan demand and little deposit growth. Apparently farm receipts are coming in a bit late this year. Grain is being put in storage, cattle are not yet moving in Montana (although some handsome contracts have been drawn), and set-aside payments haven't been made.
But this situation should change soon, so deposits at rural banks are expected to show growth in late October and in November. Ag loans are now being repaid, but expectations of strong loan demand next year are widespread.
Money market certificates-of-deposit are still selling well throughout the district. These instruments don't account for a significant percentage of consumer time deposits here, but they have helped stem the erosion that was seen earlier this year.
Throughout the district we are hearing reports that loan demand has not slowed despite high nominal interest rates. With the current inflationary psychology, borrowers apparently are attempting to stay ahead of expected price increases.
Big businesses, which cite inflation as the economy's number one problem, are finding that their low inventory positions are giving them the liquidity they need to finance internally. It seems obvious, then, that the nominally high interest rates are not so high that they pose any kind of threat to district economic activity.