January 27, 1982
Despite a few bright spots, the Ninth District economy remained fairly depressed in December and early January. Spending on general merchandise, autos, and homes was still weak; most manufacturing orders and production declined further; the forest products and iron mining industries remained depressed; and farm income was hurt once again by falling prices. Reflecting these weaknesses in economic activity was bank lending, which was still very slow. The district had only three positive signs: the winter sports industry was still thriving, high technology manufacturing seemed to be expanding, and the iron mining industry, although still depressed, resumed some operations.
Consumer Spending
The slump in general merchandise sales, which began last summer,
persisted into early January. Sales improved some around the
holidays in late December, but not enough to compensate for the
weakness earlier in the month. Major Minneapolis-St. Paul retailers
and our Bank's directors indicated that overall, in December as in
November, poor sales of large durable goods depressed general
merchandise sales. Furthermore, the late December sales rally did
not last into January. One major Minneapolis-St. Paul retailer said
his firm's sales declined more than seasonally in early January,
partly because of abnormally cold weekend weather. The late December
rally apparently was strong enough to reduce the early December
inventory buildup, however. Retailers did not report any unusual
inventory problems in early January.
Sales of autos and homes remained weak too. According to regional sales managers for two of the largest selling domestic automobiles, new car sales were depressed throughout 1981, and they did not revive in early January. The two managers said their new car sales dropped 16 and 21 percent in 1981. Also, Bank directors reported that home sales in the district remained very weak in December and early January.
Spending on winter sports, however, continued to be very strong. Snow conditions at both the western and the eastern ends of the district have been excellent this winter, and ski area operators indicated that their business was quite a bit better than usual. One large ski lodge in northern Minnesota, for example, reported that in December its business was up 21 percent from a year ago.
Industrial Activity
One manufacturing industry also seemed to be fairly strong this
winter, but manufacturing generally was weak and getting weaker. The
strong industry was high technology manufacturing; orders at a large
Twin Cities computer manufacturer recently increased more than
seasonally. Some manufacturing activity remained essentially
unchanged. Production at a major food products manufacturer
increased only slightly in December and early January, and a big
manufacturer of packaging equipment said business was holding
steady. Most manufacturers continued to experience declines, though,
stemming especially from weak demand for building supplies, consumer
durables, and automobiles. New orders and production at a large
Minneapolis-St. Paul manufacturer of windows, for example, decreased
in December and early January, and its inventories were reportedly
higher than desired. New orders at a large Wisconsin manufacturer of
consumer durables recently declined too, and the district's one auto
assembly plant was shut down during the first two weeks of January.
The forest products and iron mining industries remained depressed as well, but iron mining recently showed signs of improvement. Directors from Montana, northern Minnesota, and the Upper Peninsula of Michigan reported that the forest products industry was still very depressed in December and early January. During this period, production at taconite (iron ore) plants was down considerably from earlier years. According to Bank directors, however, several plants that were closed in November and December recently resumed operations.
The recent weakening in most industrial activity has been accompanied by an increase in initial claims for unemployment insurance. In Minnesota, for example, these claims, seasonally adjusted, rose 7 percent between November and December and another 5 percent in early January.
Agricultural Conditions
The farm sector was also still depressed at year-end. The prices
farmers receive for their products have been falling since late
1980, and they fell again in December 1981. In Minneapolis, cash
prices for soybeans, corn, and wheat declined 2, 3, and 4 percent,
respectively, between November and December. At the same time, in
south St. Paul, cash prices for slaughter steers, feeder cattle, and
hogs dropped 1, 5, and 7 percent, respectively. As a result of the
price declines, farm income was hurting in the district: 87 percent
of the rural bankers responding to our latest Agricultural Credit
Conditions Survey said the income of farmers in their areas in the
fourth quarter was less than the year before.
Financial Conditions
The weaknesses in the district economy continued to be reflected in
bank lending. Outstanding loans at Minneapolis-St. Paul banks in
December and early January remained at November's very low level,
and Bank directors from outside the Twin Cities reported weak loan
demand in their areas. Because of this weakness, a North Dakota
director said, loan-to-deposit ratios at banks in his area were at
their lowest level since the early 1970s.