January 20, 1984
Strong holiday retail sales, which occurred despite the unusually frigid district weather, indicate continued growth in both consumer confidence and the economy. These sales have been accompanied by heavy consumer borrowing. Also despite the cold weather, the agricultural outlook, particularly in the livestock sector, has improved a little. Activity in the district's resource-related industries has improved as well.
Consumer spending
All reports indicate consumer spending this holiday season was very
strong and would have been even stronger if temperatures had not hit
record lows. One large district retail chain reports that its stores
experienced their best December nominal sales increase in ten years.
Further, this nominal increase was mainly real, coming as it did at
a time when inflation fell to a twenty-year low. A Minneapolis
retailer reports similar increases, noting that winter apparel sold
quite well. Our Bank directors report good sales throughout the rest
of the district, too. Several retailers say sales dropped somewhat
when temperatures dropped below zero. But some of them were
surprised by a vigorous post-holiday demand, which came when
customers—and their wallets—thawed out. Business at ski resorts has
also been hurt by the intense cold, but it also improved when the
weather did.
Motor vehicle sales continue to show the soundness evident in previous reports. Domestic car sales managers say that inventories of both cars and trucks were barely adequate at year's end. Sales were up last quarter, especially sales of trucks. One firm's truck sales were reportedly 41 percent higher this December than last. Recreational vehicles are also said to be in great demand. Big cars and pickups are selling very well in South Dakota. Moderate to good sales are reported in southern Minnesota, Montana, and most of South Dakota. Furthermore, special promotions have not been fueling these sales; they instead reflect the favorable economic climate.
To finance this spending, consumer borrowing has been increasing at a good clip in nearly all of the district. A Bank director in rural Minnesota reports that consumer lending has been strong there lately, while another in South Dakota says that it has been fairly good at many hanks. One large district retailer says that its credit sales have been rising, both absolutely and as a percentage of its increasing total sales. Another local retailer reports no problems with its credit accounts. However, consumer lending is still weak in the economically troubled Upper Peninsula of Michigan.
Agriculture
Overall, the agricultural picture has improved slightly in the last
few months. Most of the heavy winter wheat plantings in North Dakota
and Montana have adequate snow cover, although some fields have been
whipped bare by high winds. If wheat production is as high as
expected, though, the resulting low prices will depress farmers'
profits. An agricultural implement dealer in Montana reports good
sales and low inventories. Recent estimates show that the newly
enacted Federal Dairy Diversion Payments Program will offer farmers
between $5,000 and $15,000 each. But district Bank directors in
dairy-intensive areas find it hard to accurately estimate the likely
degree of farmer participation in this program. Lending to dairy
farmers has been relatively strong in some parts of the district.
While a recent survey of agricultural lenders shows that farmers
have been paying off their debts more quickly, a Bank director in
South Dakota says that farmers' financial statements have not been
as good as expected. Finally, while cattle prices have increased,
extremely cold weather and high hay prices have made it difficult
and expensive to keep cattle from losing weight. On balance, one
Bank director is guardedly optimistic about livestock profitability.
Resource-Related Industries
Resource-related business activity has perked up recently. Renewed
interest in lumber operations in western Montana is reported. While
sales have fallen from their high point in 1983, stud prices rose 23
percent last year, and slow but steady improvement is foreseen this
year. The pulp and paper industry is still performing well
throughout the district. Due to favorable drilling costs, oil
activity in North Dakota is trending upward. However, gas activity
and coal production are not expected to pick up. Iron ore production
is starting to pick up, though. A local taconite official thinks
that production this year will exceed 1983 levels.