January 31, 1979
The district economy is holding up pretty well under unusually harsh winter conditions, but government economic policy may prove to be tougher to handle than the elements. The weather has had a substantial impact on the agricultural sector, and it isn't all for the worse. Other sectors have been affected less by the weather. Most retailers have seen just a bit more than the normal post- holiday sales slowdown. Homebuilders aren't too busy either, but again that's normal for this time of year. In contrast, commercial builders, manufacturers, and bankers remain quite active despite the season. Directors were concerned that wage and price guidelines and Congress's treatment of Carter's budget could be much harder to handle than the bad weather.
Severe winter weather has had its most pronounced impact on the agricultural sector. Directors report that cattle producers have had particular difficulty dealing with the elements. Range conditions have forced ranchers to deplete their feed supplies at an unexpectedly rapid rate in the Dakotas and Montana. Fortunately, those supplies were at abundant levels last year, and they should be sufficient for the rest of the winter. Nevertheless, some stock loss has been suffered, and ranchers are concerned that continued bad weather might take a large toll during the calving season, which is just now getting underway.
Continued bad weather could actually be good for many grain producers, though. Heavy snow has two beneficial effects for farmers. It provides needed cover for the winter wheat crop. And it provides soil moisture, which is essential for good crops throughout the year. The main negative impact of the severe winter for grain farmers is related to the scarcity of rail cars for grain hauling mentioned last month. A couple of bank directors noted that this situation has been exacerbated by recent weather conditions.
The normal post-holiday retail sales slowdown was made only slightly slower by these weather conditions. Directors from Michigan, South Dakota, and Montana mentioned that some shoppers were reluctant to venture into the cold and snow. But other directors from Montana and Minnesota indicated that sales were about at or slightly higher than expected levels for this time of year.
Like retail sales, district homebuilding activity is typically slow in January relative to the rest of the year. And this January some parts of the district have seen homebuilding come to a near complete halt. But in some other parts of the district, for instance, a few large Minnesota communities, home-builders have been busier than expected. For the district as a whole, then, this month's building lull does not appear exceptionally quiet.
Commercial builders, manufacturers, and bankers have seemed nearly immune to the bad weather. Commercial construction activity, especially in Minnesota, is reported to be quite hectic for this time of the year. Manufacturers throughout most of the district are straining to work down large backlogs, and shortages of skilled labor were mentioned by a few directors. Financial institutions continued to face strong loan demand and were actively competing for expensive funds to augment rather slow growth in demand and savings deposits.
Several of the bank's directors were more concerned about the impact of government economic policies than they were about the weather. They and other observers around the region remarked on problems with wage/price guidelines. Area businesses are expending a considerable amount of resources trying to understand the implications of the guidelines for their pricing and wage setting behavior. Furthermore, directors commented on the inefficiencies which would arise from strict adherence to guidelines. One director noted that controls on oil and gas prices and less stringent control on exploration and drilling expense was likely to reduce oil and gas output, meaning higher prices for consumers in the end. Another director remarked on the difficulty of holding health care prices within the guidelines in the face of the increasingly complex maze of regulations affecting the provision of those services.
Most directors looked for government austerity as the best way to fight inflation and were concerned that Carter's budget might not be austere enough when Congress finishes with it. Several directors speculated that Congress would substantially increase budgeted nondefense spending. On the other hand, a couple of directors thought the spirit of Proposition 13 might keep Congress's hands off the budget.