December 13, 1978
Economic activity in the Ninth District remains strong as 1978 draws to a close, but prospects for 1979 are uncertain. Retail sales are up. Inventories are about right. Industrial activity is hectic. Builders are busy. Farm receipts are high. And financial institutions still have lots of customers. However, uncertainties regarding government policies loom large in most scenarios of likely economic developments in 1979.
Retail sales have rebounded after a fairly slow start in holiday spending. Retailers across the district were concerned about the low level of sales activity over the Thanksgiving weekend. But reports indicate a substantial acceleration in consumer spending has been realized during the last couple of weeks. Directors from every district state remarked that the recent strength in buying should push this year's holiday sales well above last year's.
This sales increase is draining off some of the inventories that a few district retailers, especially soft goods dealers, had seen building up in November. In fact, one Minnesota director expected fewer post-Christmas sales than usual because of low inventory levels.
Manufacturers have kept inventories under control too. Our Bank's latest Quarterly Industrial Expectations Survey reveals that most manufacturers consider their inventory levels "about right."
Brisk sales have held down those inventories. Based on our survey, we estimate manufacturing sales are currently running about 13 percent above last year's fourth quarter. Since producers' prices have climbed only 8 percent during the past year, these sales represent substantial real gains in manufacturing activity.
The construction sector is substantially busier than last year, but some slowing has been observed around the district. Construction employment is way up, and the market for building trades people is very tight. Commercial and industrial construction has shown almost no signs of slackening. That isn't true of residential building though. While it is difficult to disentangle seasonal elements, most directors detect signs of a slowdown in the homebuilding sector.
Some things are moving slowly in the agricultural sector, but not cash receipts. Railroad cars have been in short supply relative to demand, so that many farmers have encountered difficulty in getting their grain off the farm. A Montana director reported that about 10 percent of the grain produced in one county was sold, but could not be transported. A South Dakota director attributed the severity of the transportation problems to the extremely good harvests. Because of those bumper harvests, grain farmers are in good shape financially despite the slowdown. And cattle ranchers, poultry producers, and dairy men are benefiting from abundant feed and relatively high output prices.
The price of credit is also high, but financial institutions continue to have customers. There has been a shift in the type of customers, though, as commercial borrowing has declined substantially, while installment borrowing is way up. There were even several customers for the new automatic transfer service in one of Minnesota's larger communities, but that was in contrast to a lack of demand for ATS in most locations.
Future prospects for the economy are clouded by uncertainty over government actions. Two directors were concerned that price guidelines would have the same stifling effect on the economy as price controls typically have. A South Dakota director noted concern among cattle producers that the President would allow expanded beef imports in response to continuing high beef prices. And a couple of directors were apprehensive regarding the impact of the imminent boost in the minimum wage.