April 11, 1979
Contrary to what many economists predicted last year, the district's economy is holding up pretty well. Several economists expected both the nation and the district to slide into a recession by the end of 1978 or at least early in 1979. Our Bank's directors indicate in April, however, that business activity remains strong. And as long as the trucking strike is not prolonged, they expect that strength to continue everywhere except in the construction industry.
Widespread Strength and Optimism
District manufacturers seem to be having a very good year. Several
directors report brisk activity in these industries which they think
will increase. This strength is reflected in the heavy loan demand
directors see at many commercial banks, and they don't expect that
to ease soon either.
This region's low unemployment is another manifestation of economic strength. The district's unemployment rate is currently at a low 14.3 percent, and nonagricultural jobs have increased 4.4 percent over the last year. In fact, two directors say their areas are at full employment. Joblessness should remain low in this district; help wanted ads indicate that employers are not slackening their hiring plans.
The farm sector is also contributing to the district's prosperity. Directors expect high prices to continue to bolster livestock producers' profitability. Dairy farmers are making money too, and new price supports should make their business even better. And grain growers' prospects remain quite favorable if the weather cooperates.
This strength in the district's economy makes district retailers busy and optimistic. Hard goods and autos are selling well, and retailers think demand will remain strong for these goods, especially smaller cars. Unseasonably cold weather is holding down soft goods sales, but this merchandise is expected to start moving once warmer weather arrives. Directors say most retailers are satisfied with their inventories and don't anticipate any problems.
A Slowdown and a Threat
Not everything looks rosy, however.
For one thing, the district's construction industry is working hard now, but it seems likely to slow later this year. A large national building products supplier, headquartered in Minneapolis, reports that customers' inventories unexpectedly rose sharply in early 1979 because of a softening in residential building. This firm sees housing starts dropping from 1.8 million to 1.6 million between the first and second halves of 1979. In addition, this manufacturer says bookings for new commercial and industrial projects fell in early 1979, and it projects national nonresidential building peaking in the third quarter and declining 5 percent in real terms between 1979 and 1980. These declines are expected to result mostly from the high cost and low availability of funds—a concern that several bank directors also have.
And the construction industry may not be the only one weakening if the current trucking strike lasts much longer. The strike has already affected Montana ranchers' ability to get feed. And a large Minneapolis-St. Paul area manufacturer is starting to run out of space because finished products cannot be shipped. Directors think that if the strike does not end within about two weeks, many manufacturing plants and construction projects will be shut down as inventories of production inputs are depleted.