November 12, 1980
With interest rates continuing to rise, the district's recovery was sluggish in October. Although there were modest gains in merchandise and auto sales and in manufacturing production, there was no change in mining or agricultural activity and there was a sharp decline in home sales. Reflecting these lackluster economic conditions, bank lending did not increase.
Consumer Spending
Consumer spending was frugal. According to bank directors and large
Minneapolis/St. Paul retailers, general merchandise sales increased
modestly between September and October. Likewise, car sales
accelerated modestly in October, according to regional sales offices
of' domestic automobile manufacturers. However, home sales, which
are very sensitive to interest rates, declined as the dollar value
of mortgage loan applications at Minneapolis/St. Paul area S&Ls
dropped 36 percent between September and October.
Industrial Activity and Inventories
In October, industrial activity shifted to low gear. After improving
adequately for three months, manufacturing production grew more
slowly in October, directors reported. This slower growth, one
director believes, stems from recent interest rate increases which
pushed up inventory costs and caused businesses to curb their
orders. While manufacturing production slowed, mining output
remained below grade. In northern Minnesota and the Upper Peninsula
of Michigan, iron ore shipment continued to be depressed in October,
and in Montana copper mines remained shut down by a labor dispute.
Agriculture
The favorable agricultural conditions that existed in the district
in September remained unblighted. Favorable weather continued into
October, so crops properly matured and farmers had ideal conditions
for harvesting corn, soybeans, and sunflowers. Like the weather,
favorable prices continued into October. In Minneapolis, the average
cash prices for corn and soybeans were unchanged between September
and October, and wheat prices rose 8 percent. In St. Paul, average
cash prices for cattle and hogs were close to their September
levels.
Financial Developments
Because of the district's sluggish recovery, there was no advance in
bank lending. Loans outstanding at Minneapolis/St. Paul area banks
were essentially unchanged between September and October. Directors
from outside the Minneapolis/St. Paul metropolitan area also
reported no lending increases at commercial banks in their areas.