January 29, 1980
Although the district has been jolted by the grain embargo, agricultural conditions remain good, industrial activity is continuing to expand, and employment is still climbing. Thus, the region is not in a recession. But signs of softening persist, as consumers remain hesitant to spend, new orders continue to weaken, and loan requests are still declining.
Despite embargo, ag conditions remain good Many farmers feared that the embargo would lower grain prices. The embargo, they felt, would depress this year's demand for grain and possibly result in the permanent loss of an important export market. The government's agreement to purchase the embargoed grains helped ease their fears about demand in early 1980, but not about the possible loss of a large market. In addition, many farmers feared that the embargoed grains could be returned to the market later this year, when they were marketing their 1980 crops, or during the next several years. Thus, the possibility of both lower demand and higher supplies was foreseen depressing prices.
Grain prices are still high, although farmers' fears of lower prices could still be realized. Prices could still fall because of uncertainties about how our government and the Soviet Union will deal with the embargo. So far, however, the government's measures to shore up demand and hold grain supplies off the market appear to be working. Although both cash and future prices for grains fell in response to the confusion that followed the embargo's announcement, they have now returned to their preembargo levels.
High agricultural prices have been complemented by the district's large harvests, harvests that have exceeded earlier expectations. For example, Minnesota's '1979 corn harvest, the state's second largest, ended up 6 percent above November's estimate. With grain prices high and crops larger than anticipated, district agricultural conditions continue to be good.
...industrial activity and employment also are still good Along with good agricultural conditions, strong industrial activity and employment gains continue to keep the district out of a recession. Our last Redbook report indicated that district industrial activity was strong and that employers were adding workers. These conditions haven't changed. At their January meeting, this Bank's directors reported that industrial activity was still growing in their communities. Facilitating this growth, help-wanted advertising in Minneapolis/St. Paul papers in January was still high, so employment appears to be still expanding. These gains in employment are not being offset by lay-offs; Minnesota's initial claims for unemployment insurance remained low in early January.
. . . but signs of softening persist. Even though the district is not in a recession, the signs of softening that our Redbook report noted last month still persist: consumers are hesitant to spend, businesses are cutting back on ordering, and loan requests are declining.
Consumers remain hesitant to spend. Directors used terms like "spotty," "steady," or "down" to describe their area's general merchandise sales in early January. They also indicated that consumers are very reluctant to purchase homes and cars.
This reluctance to spend has made retailers hesitant to expand their inventories and is contributing to a continued slackening in new orders. A Minneapolis/St. Paul director reported that several Twin Cities manufacturers have had fewer new orders than in recent months, and a director from the Upper Peninsula of Michigan had a similar report.
The letup in new orders and consumers' reluctance to spend are resulting in fewer loan requests at district financial institutions. Bank directors indicated that in early January business and consumer loan requests were down at commercial banks. Likewise, the Savings League of Minnesota reported that in early January mortgage loan requests were down 50 percent from a year ago at Minneapolis/St. Paul area S&Ls.