March 14, 1979
Aside from some weather-related slowdowns, business is good throughout most of' the Ninth District; and except for the housing sector, the outlook is good too. Winter weather has been tough on railroads, and movement of farm commodities has slowed as a result. Consumers have been somewhat put off by the harsh weather as well. But manufacturers, commercial builders, and bankers have been quite busy. The local outlook is marred only by an expected slowdown in homebuilding during 1979.
Bank directors report a severe scarcity of rail cars and point to the weather as the principal culprit. Heavy snow has interrupted the movement of trains within the district at times this winter. A bigger problem, though, is the havoc being caused by a continuing weather-related bottleneck in the Chicago switching yards. One of our Bank's directors reports that the premium on freight car availability for grain shippers is about $.25 per bushel. That's on the order of $675 per freight car.
Railroads aren't alone in being affected by the bad weather. Several, but not all, directors observed that the inhospitality of the out-of-doors was restraining retail activity. Business for retailers in the Upper Peninsula of Michigan, northwest Wisconsin, and Montana was reportedly slowed by the snows, while retailers in a few large Minnesota communities did a brisk business in spite of poor weather. A similar contrast was noted in the winter tourism industry. Heavy snows dampened the Upper Peninsula's skiing activity, but Montana's ski shops and resorts were busy.
District manufacturers were busy too. Our Bank's February Quarterly Industrial Expectations Survey reveals broad based gains in manufacturing sales. And directors confirm that industrial activity across the district is brisk. Symptomatic of this situation is the extremely active competition among manufacturers for the services of skilled laborers.
Construction workers are also in high demand throughout most of the district. In contrast to the current slowdown in residential construction (it's hard to tell how much of it is seasonal and how much isn't), commercial construction is active. This is especially true in Minnesota's larger communities.
These real sector developments coincide with heavy credit demands and flat deposit growth at district banks and thrifts. Several directors reported "tight" money markets. One director noted that this was proving to be a boon for PCAs, as many rural bankers have been unable to meet the strong credit demands of their farmer customers. For the most part banks and thrifts are meeting the credit requirements of their customers though, and they're relying more and more on the 26-week money market certificates (MMCs) in order to get the funds to do it. But funds inflows from MMCs may slow with the recent change in regulations governing the interest terms on those certificates.
And that isn't good news for the housing industry. Worsening the terms on MMCs at banks and especially at thrifts is likely to put substantial pressure on mortgage markets. That is particularly distressing, since directors looked for a homebuilding slowdown in 1979 even before this regulation change was announced.
Aside from the housing sector, though, the outlook is pretty good. The many builders engaged in large commercial construction projects across the district have several months, and in some cases years, of work lined up. Large order backlogs are assuring district manufacturers of several months work too. According to our February Industrial Expectations Survey, district manufacturers expect double-digit year-over-year sales increases through the third quarter of 1979. The agricultural sector can look forward to an improved rail transport situation and continued high livestock prices. And a few directors would be unsurprised by a surge in consumer spending when the snow melts.