August 11, 1999 Federal Reserve Districts Ninth District - Minneapolis

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The pulse of the Ninth District economy continues strong. With the exception of natural resource-based businesses, most district firms are having a good year. Retail sales are robust; construction, particularly highway building, is healthy; tourism is gaining momentum after a slow, weather-induced start. Prices are generally stable, with a few exceptions. Signs of wage increases are evident as the region's businesses continue to cope with labor shortages. Construction and Real Estate Construction continues to provide momentum. In homebuilding, housing units authorized increased in all district states, except Montana, for the three-month period ending in June compared with a year earlier. Contract awards for roads and bridges climbed 8 percent in Minnesota and the Dakotas for June year-to-date, primarily buoyed by increases in federal highway money. "It's kind of nutty right now," is how a county board chairman in northwest Wisconsin describes the significant amount of public and private construction planned for the next two years. A major Minneapolis property developer claims that the real estate market will remain healthy, but cautions that certain property types and regions within the area might see higher vacancy rates as new space becomes available. Also supporting future slowing, contract awards for private and public buildings dropped 11 percent in Minnesota and the Dakotas for June year-to-date compared with a year earlier. Consumer Spending and Tourism Consumers and tourists continue to provide considerable thrust to the district economy. Consumer confidence is strong in Montana, says a branch bank director. A mall manager in Minneapolis reports recent retail sales are up more than 10 percent compared with a year earlier. Three retail centers in a county near Minneapolis are currently undertaking major expansions. Most auto dealers in metropolitan areas of western Montana and South Dakota report strong sales, with slower sales in agricultural areas. Some South Dakota dealers describe the past six months as the best they've had since the 1980s, according to a representative of an auto dealer association. Summer tourism has picked up since the Fourth of July after a slow start due to wet weather. The region is anticipating up to a 5 percent year-to-year increase, according to a tourism industry representative. A survey of 80 hotels, lodges and campgrounds in Minnesota revealed that about 75 percent of establishments consider business the same or better than last year and expect continued strength through the rest of the season. Inquiries and visits are up in Montana, says a tourism official. Manufacturing Manufacturing in the district remains quite strong, although manufacturers are constrained by lack of qualified workers. Some signs of growth are evident, including expansions at a Minnesota automobile plant, a computer component manufacturer plant in western Wisconsin and a western Minnesota cheese plant. However, Minnesota manufacturing employment remains slightly below year-earlier levels. A southern Minnesota machine manufacturer noted lower factory utilization due to difficulty finding laborers. Many district manufacturers reported productivity improvements in response to labor constraints. However, a Creighton University survey reported soft manufacturing activity in the Dakotas. The St. Cloud (Minnesota) Area Business Outlook Survey revealed a decrease in average manufacturing weekly work hours. Mining and Energy Metal-based mining industries continue to slide. Low prices for many metals have depressed mining output. District iron ore production in April is 10 percent below year-earlier levels and iron ore inventories are 10 percent higher than year-earlier levels. A major iron mining company plans to reduce late-1999 production by 600,000 tons. A northern Minnesota taconite mine plans to shut down for the month of November, temporarily laying off 500 full-time employees. Meanwhile, oil exploration levels have increased from early spring and further gains are expected if oil prices remain at current levels. However, oil exploration activity remains below year-ago levels with only five rigs working in North Dakota and four rigs operating in Montana compared to 14 and 10, respectively, a year ago. In addition, May oil production in North Dakota and Montana was down 4 percent and 5 percent, respectively, from year-earlier levels Agriculture Like mining, agriculture is declining. Due to wet weather, 16 percent of North Dakota's farmland is out of production this year. The USDA reports crop progress for the district is below last year's strong levels, but is about average compared with the past five years. Not only are growing conditions holding down district production, prices remain low and inventories remain high. The USDA projects corn, soybean and wheat prices to stay low throughout 1999 and into 2000. The USDA reports U. S. June corn stocks up 19 percent, soybean stocks up 43 percent and all wheat stocks up 31 percent from year-earlier levels. In addition, in anticipation of continued low prices, many farmers are building grain storage bins to hold this year's crop. Employment, Wages and Prices "Nobody should say they can't find a job," says a manager of a job service center in Duluth, Minnesota. For example, welders and other construction trade workers are in short supply. Moreover, companies continue to expand and seek employees. An electronics warranty company plans to expand in Great Falls, Mont., creating 300 to 500 new jobs. Mergers among headquarters and divisions of major Minneapolis/St. Paul companies are expected to cause layoffs in the coming months. However, with the area's unemployment rate at 2.5 percent, workers in transition are expected to find jobs. The tight labor market is forcing employers to expand hiring strategies, such as recruiting at job fairs and searching out of state. Summer camps in northern Wisconsin have hired 300 students from foreign countries to fill open positions Attracting and retaining employees have pushed up wages. Almost 60 percent of firms surveyed in the St. Cloud Area Business Outlook Survey reported higher levels of employee compensation in June than three months ago, down slightly from 70 percent reported in the March survey. A bus driver shortage in the Minneapolis/St. Paul area may increase transportation costs by double-digits in some school districts due to pay increases for drivers. Reports of price increases are sparse. Several bank directors say that retailers are holding prices steady or decreasing prices due to increased competition. According to the St. Cloud survey, only 30 percent of responding firms report that prices received in June were higher than in March; 60 percent indicate no change. A Helena branch director says that prices in southwest Montana have remained stable and retailers have felt no pressure to raise prices. There are exceptions, as prices are climbing for gasoline, health care and construction inputs, such as drywall, insulation and lumber. Return to top St. Louis Kansas City