January 2, 1980
As 1979 ends, signs of softening in the Ninth District economy persist. Consumers continue to be hesitant to spend, businesses have started cutting back their ordering, and loan requests are still declining. The region, however, is not yet in a recession. Industrial activity remains strong, employment is high, and agricultural conditions are good.
The signs of softening persist...
In November we said consumers seemed hesitant to spend, and this
assessment hasn't changed. Adjusted for inflation, December sales at
most stores have been either the same as or slightly less than a
year ago. According to this Bank's directors, home and auto sales
are down from a year ago. In the Minneapolis/St. Paul metropolitan
area, for example, 10 percent fewer homes have been sold recently
and about 40 percent fewer homes are now listed for sale compared to
last year at this time.
Consumer reluctance to spend is one reason why manufacturers are starting to receive fewer new orders. A director affiliated with a large national manufacturer indicates that in December his firm's new orders have weakened. Another national manufacturer reports a slight falloff in the incoming order rate at one industrial division.
This softening in new orders, along with the weakness in consumer spending, is reflected in a continuing cutback in loan requests at district financial institutions. In November we reported that consumers were requesting fewer loans, and this cutback is continuing, especially on loans to finance homes and large durable goods. The Savings League of Minnesota, for example, reports that its members' mortgage loan applications in late November were 28 percent below a year ago. Our sources also indicate that businesses are still requesting fewer loans.
A main cause of this letup in spending and lending is high interest rates. At present rates, many consumers cannot afford the monthly payments required to buy a large durable good or a house. Interest expense has become the fastest increasing business cost. To reduce it, businesses are cutting back inventories.
...but the Ninth District is still not in a recession In our last report we said strong industrial activity, employment gains, and good agricultural conditions were keeping the district out of a recession, and this is still true.
District industrial activity remains strong. District manufacturers responding to our survey expect their fourth-quarter shipments to be 16 percent ahead of a year ago. A recent University of Minnesota survey also reports strong manufacturing activity in the region. Complementing the manufacturing strength is considerable petroleum and coal exploration and production in Montana and North Dakota.
To accommodate this expansion in industrial activity, district employers are still hiring more workers. District help-wanted advertising is currently at a record high. This Bank's directors also indicate that employers' desires to expand payrolls are keeping labor markets tight.
Not only have industrial activity and employment remained strong, but agricultural conditions are even better now than in November. Then, many district agricultural producers were enjoying income gains, but two developments were restricting the income of some grain producers. Poor weather had put the corn harvest way behind schedule, and many feared that it would not be completed. And even if it were, transportation problems had made marketing grains difficult. In November and December, however, the weather cooperated, most farmers were able to harvest their corn, and transportation bottlenecks eased. Thus, grain producers are now marketing their crops at profitable prices and realizing income gains along with other agricultural producers.