September 17, 1997 Federal Reserve Districts Ninth District - Minneapolis

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The mood is upbeat as the Ninth District economy wends from summer into fall. Consumers are flocking to the malls and appear more willing to travel than earlier in the summer. New homes and other buildings are sprouting up across the region, and manufacturers' orders are swelling. The western portion of the region is getting a lift from a boomlet in oil and gas exploration and from the recent improvement in livestock prices, while in the eastern portion most areas are looking for a good corn and soybean harvest. This vigor in the economy is taxing the ingenuity of employers as they scramble to find workers in the region's tight labor markets, but so far the district has avoided a marked acceleration in wages. Amid the region's current prosperity, however, some soft spots persist. Tourist spending was disappointing in some areas, consumption of the district's iron ore has dropped, and the wheat and other small grain harvest is expected to be disappointing in many areas. Consumer Spending and Tourism "Very pleased," "phenomenal" and "strong" are how managers at three of the region's largest shopping malls term recent consumer spending at their malls. Moreover, two Minneapolis-St. Paul based retailers, which have been experiencing financial difficulties, reported double-digit year-to-year sales gains in August. Furthermore, the district started to shrug off some of the sluggish tourist spending plaguing the industry earlier. Since mid-July, inquiries at a Montana tourism office have been "hopping," helping to offset the slow start at Glacier and Yellowstone parks and other Montana tourism venues early in the summer. The Upper Peninsula of Michigan also had a slow start, but in July and August tourist spending was up about 5 percent from a year ago, according to a tourism official. In South Dakota, however, summer tourist spending was slower than expected, with visitations at many of the major attractions down from a year ago. Automobile dealers are less euphoric: "holding their own" and "all right" are terms association executives use to describe recent sales. Construction and Real Estate "Everyone is wondering when it's going to slow down," says an industrial property financier, commenting on the 6.4 million square feet of industrial space in the Minneapolis-St. Paul area either under construction or planned. This is up 60 percent from 4 million square feet completed in the 12 months ending in April. In South Dakota, the dollar value of publicly awarded contracts for private building from January through July is up 59 percent from a year ago. Moreover, residential building shows signs of reviving. In July Minneapolis-St. Paul area housing units authorized by building permit were up 2 percent from a year ago; from January through July they are down 17 percent from last year's high levels. Manufacturing and Business Services "We have good orders," says a Minnesota specialty electronics manufacturer. "Business is very solid," reports a North Dakota machining business. Such reports are common, and good revenue reports by publicly traded manufacturing firms and year-to-year manufacturing employment gains across the region in July confirm them. Reflecting investors' confidence in the region's manufacturers, Minnesota venture capital firms "pumped a record $92 million into 60 deals during the second quarter of 1997, eclipsing the old mark by $25 million," reports a Minneapolis-St. Paul newspaper. Most of the firms financed were medical technology or other high-tech manufacturing ventures. Small manufacturing firms reportedly are also doing well in cities in eastern North and South Dakota. The current strength in manufacturing is more than offsetting recently announced layoffs and shutdowns in the region. Noteworthy is the shutdown this summer of a South Dakota pork processing plant employing 850 workers. Natural resource industries Oil drilling remains strong and paper production is recovering, but iron mining is slowing. Montana has 12 rigs drilling, the highest level in years, and the 19 rigs in North Dakota continue the 18 month mini-boom in oil and gas exploration and development. After a slower-than-normal 1996 due to a drop in paper prices, a major Minnesota paper producer indicates its production would increase about 18 percent in 1996 and 1997, and is planning a $30 million dollar equipment upgrade. But U.S. iron ore consumption this year is down from a year ago, which is cited as a reason for recent layoffs at mines in Minnesota and the Upper Peninsula of Michigan. Agriculture Improving livestock prices have district livestock producers gearing up to expand output. Ranchers are building their breeding herds, as females as a percentage of the total cattle slaughter are below year-ago levels both regionally and nationally. Dairy producers, however, are squeezed by high forage costs, but some producers anticipate moderate price increases in coming months. Meanwhile, "the corn is excellent," reports a southern Minnesota banker, reflecting the positive outlook in the corn-soybean areas of eastern South Dakota, southern Minnesota and western Wisconsin, where good yields and favorable prices are expected. But where wheat and other small grains predominate, yields vary greatly, and prices are less favorable than for corn. "We are going to have an average crop," says an ag loan officer in eastern North Dakota. Sugar beet producers expect an average crop. Labor Markets A banner towed by an airplane over the Minnesota State Fair beseeched fairgoers to apply for work with a car rental agency. This initiative symbolizes considerable efforts many employers are taking to attract workers in the district's tight labor markets. Many Minneapolis-St. Paul employers, especially fast food operators, express frustration about the difficulty of securing needed workers, and tight labor markets remain a problem in cities in the eastern Dakotas, Minnesota and western Wisconsin. As employers scramble for workers, reports of higher pay for many specialties, bonuses and nonwage increases in compensation are increasingly common. In South Dakota, which has one of the nation's lowest unemployment rates, hourly earnings in manufacturing are up about 5 percent from a year ago in July compared to 1.5 percent the previous 12 months. No marked general acceleration of wage increases, however, is yet apparent across the region. Return to top St. Louis Kansas City