December 8, 1999 Federal Reserve Districts Ninth District - Minneapolis

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The Ninth District economy is entering the new millennium at full speed. Construction, real estate, energy and manufacturing industries continue to expand. Moreover, consumer spending remains strong. Also, agriculture shows some signs of improvement, with mining holding steady. Meanwhile the continued tight labor markets are generating wage pressure for several businesses. Overall prices remain level but the cost of some items is accelerating. Construction and Real Estate District construction remains robust, with warm fall weather extending seasonal building activity. Contracts awarded in Minnesota and the Dakotas increased by 3.3 percent for the three-month period ending in October compared to year-earlier levels. Construction employment grew 8.2 percent compared to a year earlier in Montana. Home building continues quite strong. District housing units authorized grew by 4 percent for the three-month period ending in October compared to a year earlier. However, there may be signs of slowing in Minneapolis-St. Paul. Home-sale agreements recently softened from their vigorous pace of the past two years, according to a realtor association president. While the median price of closed sales in Minneapolis-St. Paul fell for a third consecutive month in October, it was almost 10 percent above year-earlier levels. Consumer Spending Consumer spending remains steady, with optimistic reports for holiday sales. Reports for post-Thanksgiving retail sales suggest same-day store sales increased 6.5 percent over last year in Minnesota. Almost all retailers in Billings, Mont., have more merchandise on their shelves than last year in anticipation of strong holiday sales. Government payments to farmers are boosting rural Montana retail sales, according to a branch director. Retail sales at a Fargo, N.D., mall were up about 5 percent in October and store managers are optimistic about holiday sales. New car and truck registrations were up 18 percent in South Dakota for September and October compared to a year earlier, while auto sales were level in North Dakota. Warm weather has slowed the start of winter tourism; however, inquiries and reservations are up overall compared to last year, especially in the Upper Peninsula of Michigan, and level in northern Wisconsin, according to tourism officials. The warm fall weather has stalled early ski traffic at a resort in northern Minnesota; however, reservations for the rest of the season are good. Reservations at a Montana ski resort are up 45 percent for the year. Manufacturing Manufacturing in the Ninth District remains strong, with many manufacturers reporting strong sales and expansion plans. A Minnesota fabricated metal firm reports tremendous growth in sales. A Minnesota electronic equipment company is having trouble meeting demand and is planning to add office and production space. A purchasing manager survey by Creighton University indicates solid improvements in the Minnesota manufacturing sector; however, the same survey reports much softer manufacturing conditions in South Dakota. Some manufacturers reported reductions in sales, including a Minnesota printing company and a computer components firm. Mining and Energy The metal-based mining industries remain stable, as no new district mine openings or closings were reported. August iron ore inventory levels are down 4 percent from year-ago levels. Meanwhile, oil exploration activity remains strong. In November, 15 rigs were operating in North Dakota, two rigs in South Dakota and six rigs in Montana compared to eight, zero and six, respectively, a year ago. In addition, November oil production in the district was up 4 percent from year-ago production levels. Agriculture "Prospects for farm income are quite good," reports a bank director. Farmers' financial condition is starting to improve due to government payments and a good harvest. Based on preliminary results of the Ninth District's fourth quarter (November 1999) survey of agricultural credit conditions, 64 percent of respondents reported that farm income is below normal levels as compared to 73 percent of fourth quarter 1998 survey respondents. The survey also revealed that 32 percent of respondents reported below normal level of loan repayments compared to 53 percent of the fourth quarter 1998 survey respondents. The harvest is essentially complete, with most farmers enjoying a sizable harvest, although low soil moisture has some farmers and ranchers worried. Dry and warm weather has reduced soil moisture levels across most of the district. The dry conditions have contributed to numerous pasture fires, which have burned fields in portions of Montana and the Dakotas. An exception to the dry conditions is in the Red River Valley, where extremely wet weather late in the season has reduced the Red River Valley potato crop by 40 percent. Employment, Wages and Prices Employers still have difficulty finding quality workers. The tight labor force has some retailers concerned about staffing for the holiday sales season. Worker availability is currently 15 to 20 percent below the perceived need at retail stores in Great Falls, Mont., according to a branch director. In construction, general contractors in Minneapolis/St. Paul continue to struggle to find workers. "Labor is the biggest factor right now," says a construction company president. Continuing labor shortages have contributed to slower growth over the past several months in North Dakota, according to a survey of purchasing managers. Nevertheless, expansion plans are still reported. In Minneapolis-St. Paul, 44 percent of companies surveyed by a major staffing company plan to hire more workers during the first three months of 2000, while 10 percent plan reductions. A year ago 33 percent planned increases; 17 percent planned reductions. Two North Dakota Internet-commerce companies are planning to hire 250 and 100 new people respectively. A recently planned bank operations facility in Sioux Falls, S.D., could create up to 300 to 500 jobs over the next five years. In contrast, a Minnesota-based computer part manufacturer will cut 160 positions. Employers continue to increase wages to attract and retain employees. In an informal telephone survey of companies in Minnesota, the Dakotas and Wisconsin, 18 of 23 respondents mentioned upward wage pressure. District manufacturing hourly wages increased 3.3 percent for the three-month period ending in October compared to a year earlier, which is a slightly lower rate than the 3.6 percent for the three-month period ending in July. Overall prices remain stable with a few exceptions. In an informal telephone survey of companies in Minnesota, the Dakotas and Wisconsin, less than 50 percent of the respondents mentioned upward pressure on input prices; under 25 percent reported higher product prices. Price increases are noted in fuel, construction supplies and health care. Trucking companies in Montana report fuel costs up 10 to 12 percent. Return to top St. Louis Kansas City