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Economic growth in the Ninth District shows signs of slowing. The construction, tourism, and manufacturing industries as well as consumer spending have softened. Meanwhile, energy and mining activity continues at a robust pace. In agriculture, most district farmers expect a bin-busting harvest, but crop prices remain low. A drought and fires have hurt most Montana farmers and ranchers. Labor markets are still tight as businesses struggle to attract and retain workers. Some price increases are noted, primarily in housing, natural gas, electricity and paper.
Construction and Real Estate
Commercial construction continues to grow but at a slightly slower rate. Building contracts awarded in the Dakotas and Minnesota increased 2 percent for the three-month period ending in July compared with last year. A commercial real estate firm predicts that downtown St. Paul will reach 10 percent to 12 percent vacancy rates during the first quarter of 2001, and some rental rates have dropped due to oversupply. In contrast, building activity in Eau Claire, Wis., is at a record pace.
Homebuilding remains soft. Housing units authorized are down 6 percent in the district for the three-month period ending in July compared with a year earlier. In Minneapolis-St. Paul the number of residential sales decreased 7 percent for July compared with last year; however, the median price for a home in Minneapolis-St. Paul in July was up 12 percent over a year earlier.
Consumer Spending and Tourism
The pace of consumer spending continues to show signs of slowing. A major Minneapolis-based retailer noted that July same-store sales increased 2.5 percent compared with a year ago. Retailers in Minnesota are not enthusiastic about the year so far, according to a state chamber of commerce representative. Auto sales are down about 9 percent in the Duluth, Minn., area and slower overall in North Dakota, according to representatives of automobile associations. In contrast, a Minneapolis area mall reports July sales up 10 percent over last year.
Summer tourism decreased in several parts of the district, except for Minnesota and Wisconsin. Traffic crossings at the International Bridge at Sault Ste. Marie, Mich., were down 7 percent in August compared with last year, indicating a drop in tourism activity for the Upper Peninsula. A bank director reports sales down 1 percent to 10 percent compared with a year ago at various district tourism businesses. Montana forest fires have hurt outfitters and guest ranches; however, the fire fighting effort has added $1 million per day to supporting businesses in the affected areas, according to a bank director. A chamber of commerce representative in Wisconsin reports full bookings at resorts and brisk restaurant business this summer. According to a survey of tourism businesses in Minnesota, the number of visitors was up over a year earlier.
Manufacturing
Manufacturing activity in the district has slowed. A southern Minnesota clothing company is planning to shut down a factory and shift production to other countries, a paper producer is closing distribution centers in South Dakota and northern Minnesota, and a promotional goods manufacturer is closing operations at a newly built Minnesota manufacturing facility. In addition, recalls are also affecting some district manufacturers; a major truck assembly plant in Minnesota shut down for three weeks due to a tire recall, and an all-terrain vehicle manufacturer had to recall an estimated 8 percent of this year's production. An August purchasing manager survey by Creighton University indicates a significant manufacturing slowdown in Minnesota, but strong growth in the Dakotas. A Dakota construction products company reports strong demand, a machine parts manufacturer in the Upper Peninsula of Michigan plans to double its manufacturing capacity, and a western Wisconsin corrugated material product firm reports strong sales.
Mining and Energy
The iron ore, palladium, and petroleum industries continue to operate at near capacity. June iron ore consumption was 14 percent above year-ago levels, while June inventory levels were down 15 percent from a year earlier. District iron ore shipments in July were up 11 percent from a year earlier. In addition, palladium production is at full capacity. However, due to a huge increase in electricity costs, a Montana copper mine stopped production until at least November, according to a bank director. Meanwhile, district oil exploration and production continue at a strong pace in response to high petroleum prices.
Agriculture
"Improved livestock prices and hopes of above-average yields will offset the poor grain prices," reports a Minnesota agricultural lender. Farmers' financial condition continues to improve, based on preliminary results of the Ninth District's third quarter (August 2000) survey of agricultural credit conditions. Loan repayments have improved, as 72 percent of respondents report average or above-average levels of loan repayments compared with 41 percent a year ago. In addition, farm income improved as 46 percent of respondents reported average or above-average farm income, compared with 14 percent a year ago. However, fires, drought, and continued low crop prices have many lenders worried that ranchers and farmers will incur financial losses this year.
A potential bumper crop has many Ninth District farmers scrambling for storage space. The U.S. Department of Agriculture reports corn and soybean progress ahead of the five-year average for many district states. Meanwhile, with many farmers still storing their 1999 crop, grain storage manufacturing companies report strong demand for storage silos.
Employment, Wages, and Prices
The district labor market remains tight. For example, the number of applications submitted for law enforcement jobs in Fargo, N.D., has dropped from an average of 300 applicants a few years ago to 30 today. Nevertheless, employers are planning to hire more workers. In a recent survey conducted by a temporary staffing company, 43 percent of Minneapolis-St. Paul businesses expect to hire more employees during fourth quarter 2000, compared with 40 percent a year earlier. An electronic commerce company in Grand Forks, N.D., is currently in the process of hiring 150 new workers. However, in spite of signs that employers are seeking more workers, employment growth in district states has slowed. Employment increased 1.3 percent in July 2000 compared with a year earlier, down from an increase of 2.4 percent in July 1999 from July 1998.
District manufacturing wages for July are up 3.2 percent compared with a year earlier. Wages for field and livestock workers in the district climbed over 6 percent in July compared with last year. A Minnesota building product manufacturing company is increasing wages 4 percent, but predicts that improved productivity will offset the increase in labor costs. A recent 78-day strike at a soft drink bottling company in the Minneapolis area ended with a settlement that included about a 2.7 percent increase in wages.
Increases were noted in energy and input prices. Winter heating costs are expected to increase from last year due to higher oil and natural gas prices. Diesel fuel prices are up almost 30 percent compared with a year earlier. Montana electricity prices for large firms have reached record levels since May. Paper prices have increased for 15 consecutive months. A recent informal survey of manufacturers in the Dakotas, Minnesota, and Wisconsin shows that about 40 percent of respondents report higher input prices.
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