May 13, 1981
Although there are a few signs that the Ninth District's business activity improved in April and early May, the sluggishness noted in our last report has generally persisted. The signs of improvement came in consumer spending and agricultural conditions. General merchandise sales increased modestly, and auto sales surpassed their low prerebate levels. Also, farm prices rose and part of the district received some much-needed rain. The other components of the district's economy, however, continued to be sluggish. Manufacturing activity remained sluggish as gains in some industries' orders were offset by declines in others, and iron ore, lumber, and home sales continued in the doldrums. In addition, construction activity has recently been disrupted by strikes. These weaknesses were reflected in sluggish bank lending.
Consumer Spending
Consumers became less hesitant to spend. General merchandise sales
increased somewhat more than seasonally in April, after being very
sluggish in March, and recent sales were better than expected,
according to three major district retailers. One large retailer with
stores throughout the Upper Midwest, for example, reports that 37
out of his firm's 40 stores had sales increases in April. Directors
from southern Minnesota and Montana also report that retail sales
recently have strengthened.
Accompanying the pickup in general merchandise sales has been a modest revival in auto sales. District car sales did decline in early April after being boosted by the rebates in March. But a regional sales manager for a domestic auto manufacturer states that sales in late April and early May exceeded their low prerebate levels and that in the Minneapolis-St. Paul metropolitan area April sales were large enough to give most dealers a profit.
While general merchandise and auto sales, although still quite weak, showed signs of improvement, home sales have not picked up. Mortgage loan applications at Minneapolis-St. Paul S&Ls in April were unchanged from March's depressed level.
Agricultural Conditions
Agricultural prices and the weather both improved modestly in April
and early May. Cash grain and livestock prices at the Minneapolis
and South St. Paul markets were all up 1 to 6 percent between March
and April, but most prices were still well below the highs attained
late last year. According to an economist with a large international
grain trading firm, part of the increase in grain prices came from
the markets anticipating that the administration would lift the
embargo in late April. The weather has also improved. A month ago,
the entire district needed rain, and drought or near-drought
conditions still persist in western Minnesota and North and South
Dakota. But in April sufficient rains came to eastern Minnesota and
western Montana.
Industrial Activity and Inventories
In contrast to the slight improvement in consumer spending and
agricultural conditions, industrial activity in April and early May
was essentially unchanged from March's sluggish level. Gains in some
manufacturing sectors were offset by declines in others. An
economist with a national manufacturer of medical and office
products indicates that his firm's orders picked up in April and
that his firm's inventories are now lean. Similar comments also are
voiced by an economist with a large national manufacturer of
consumer products. On the other hand, an economist for a national
manufacturer of building supplies indicates that his firm's orders
declined in April, and a director associated with the paper industry
reports a recent softening in his firm's new orders. In addition, in
April and early May, taconite plants and lumber mills continued to
operate well below their capacity.
Not only have manufacturing and mining failed to pick up, but
construction activity has been disrupted by strikes. On
May 1, 2,800
Minneapolis-St. Paul bricklayers, roofers, and sheet metal workers
went on strike. With pickets out at most major construction sites,
these strikes have disrupted much of the construction activity in
the Minneapolis-St. Paul metropolitan area.
Financial Development
Despite the improvement in consumer spending and agricultural
conditions, the continuing weaknesses in the economy resulted in
sluggish bank lending. In April and early May, directors report
little change in bank lending from March's low level. They indicate
that banks have increased their federal funds sales, because their
customers have been reducing their loan requests. These reductions
are attributed both to the sluggishness in the regional economy and
to high interest rates.