July 5, 1979
The Ninth District economy is not now in a recession, but there are several troubling developments. Nonagricultural output and employment continue to expand, business loan demand remains strong, and agricultural conditions are still good. Yet, energy problems, a slowdown in consumer spending, and some reduction in the rate of homebuilding are worrisome signs.
The district economy remains very prosperous.
Nonagricultural output continues to expand. Manufacturers responding
to our latest Industrial Expectations Survey report no letup in
sales growth. They expected their year-to-year sales gain in the
second quarter to be 13 percent, matching their first quarter's
sales gain. In addition, Minnesota Industrial Development
Association members report that commercial/industrial building in
Minnesota is still very strong. And this Bank's directors from
Montana, South Dakota, and the Upper Peninsula of Michigan report
gains in their areas' industrial sectors.
Consistent with these output gains are the continuing increases in jobs and bank lending. Employment in the district in May was up 2.9 percent from a year ago and is still climbing, as the high level of help wanted advertising suggests. Another indicator of strength is the persistent, strong demand for business loans at most district commercial banks.
Agricultural conditions also remain favorable. Crop production is likely to be good again this year. While unfavorable winter and spring weather did damage the winter wheat crop and hold up planting, growing conditions are now quite good in most areas. If current high prices hold up, farm earnings will probably continue to be quite strong. Although crop production will probably not reach last year's record high levels, this will probably be offset by the recent increase in grain prices. Livestock producers should also benefit from record high prices.
But several developments threaten this prosperity. Energy developments are beginning to curb economic activity. Businesses, for example, have been disrupted by the trucking strike. The inability to obtain inputs and ship finished products has forced two Montana packing plants to curtail operations. Furthermore, two directors, who head large manufacturing firms, report that the trucking situation has hampered their companies' ability to move goods.
Restrictive diesel fuel and gasoline allocations are also holding back business activity. A lack of diesel fuel is interfering with coal mining in Montana. Although gasoline shortages have been serious only in the Minneapolis/St. Paul metropolitan area, concern about gasoline availability is curbing travel throughout the district. Some examples: An estimated 8,000 out of 30,000 Shriners canceled plans to attend their international convention in Minneapolis/St. Paul in mid-July. In western South Dakota, tourist business is down 20 to 30 percent from a year ago. About 40 percent fewer cars than a year ago traveled across the Mackinac Bridge to Michigan's Upper Peninsula in late June. Fears about gasoline availability are also hampering auto sales. Directors' comments indicate that, primarily due to the gasoline situation, large car sales are down throughout the district. Some dealers now have excessive inventories of large cars.
Another development that could threaten the prosperity of the district is that residents are more hesitant to make purchases. A director whose firm operates specialty shops and restaurants reports that business has recently been "spotty." In the Minneapolis/St. Paul metropolitan area, several major department stores recently observed a weakening in their sales. Directors from outside the Minneapolis/St. Paul metropolitan area likewise report a weakening in retail sales, especially for soft goods. They also detect some unwanted buildup in inventories.
A final troubling development is that housing activity has slowed down. Building permits for new homes recently declined in the district. In addition, some directors report that home sales have let up and that housing is more available. In one large Minnesota community, for example, approximately 950 homes are listed for sale as contrasted to about 650 last year.