September 22, 1999 Federal Reserve Districts Ninth District - Minneapolis

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As fall begins, the overall Ninth District economic activity continues to rise, although natural resource-based industries are still struggling. The economy remains vigorous for construction, consumer spending and manufacturing. Many Minnesota consumers are spending their state government rebate checks. However, low commodity prices continue to depress farm income and curtail metal mining. Overall labor markets remain taut and several businesses report boosting worker pay. Generally, prices remain stable, but notable increases were reported for healthcare, homes and construction. Construction and Real Estate "Everyone keeps expecting things to slow down a little, but it just isn't happening," says a Minneapolis/St. Paul builders association representative. A record number of construction permits were issued during the first half of 1999 in Eau Claire, Wis. Several apartment complexes are under construction in Sioux Falls, S.D., in response to low rental vacancy rates. Building contract awards grew 1 percent for the three-month period ending in July compared to last year's high levels in Minnesota and the Dakotas. The number of homes listed for sale in the Minneapolis area for July almost matched a year earlier after remaining below last year's levels during the first six months of 1999; the median price was up 11 percent in July compared to a year earlier. Consumer Spending and Tourism Consumer confidence remains strong across the district. A tax rebate payout to about 2 million people in Minnesota at an average of $650 per check in late August is boosting retail sales. As a result, customers increased their purchases of high-end electronic equipment, according to a retailer in St. Cloud, Minn. Meanwhile, a major Minneapolis-based retailer reported a 13 percent climb in sales for the three-month period ending in July compared to a year earlier. A mall manager in North Dakota expects sales in August to finish 4 percent to 5 percent up from a year earlier. Auto sales in South Dakota are above last year's levels, but sales in rural areas are slower. Summer tourism is up in the east, but down slightly in the west. Hotel and motel occupancy across the Upper Peninsula of Michigan has been above historical levels for July and August, according to a tourism official. Tourism in Duluth, Minn., increased about 10 percent compared to a year ago. Mount Rushmore and Badlands National Park were down 3 percent and 8 percent respectively in July compared to a year earlier. While visits to Glacier National Park are down 9 percent and some areas around Yellowstone National Park are down, other Montana tourism businesses report more traffic than a year earlier, according to a tourism official. Manufacturing "Full speed ahead," reported a Minnesota manufacturing industry spokesperson; this comment reflects the state of manufacturing in the district. Signs of expansion are evident, including a Minnesota food processor expanding production capabilities. A plastic molding manufacturer reports sales up 20 percent in the second quarter over the first quarter. A South Dakota computer component manufacturing plant is increasing employment. A western Wisconsin cabinet and furniture maker expects a 15 percent increase in sales over year-earlier levels. In addition, a Creighton University survey reported manufacturing activity strong in Minnesota and North Dakota, but softer in South Dakota. However, a national forestry equipment manufacturer reported weak Ninth District sales over the last six months. Mining and Energy Metal-based mining industries remain depressed with the exception of platinum and palladium production. Reduced demand for domestic iron ore has forced reductions in mining output. District iron ore production in June is 14 percent below year-earlier levels and iron ore inventories are 12 percent higher than year-earlier levels. Two Michigan iron ore mines have been shut down for five to 10 weeks to remove some excess inventory. However, due to strong demand for platinum and palladium, a mining company is currently building a new, $270 million platinum and palladium mine in Montana. Meanwhile, oil exploration activity remains below year-ago levels with only seven rigs working in North Dakota and three rigs operating in Montana compared to 11 and nine, respectively, a year ago. In addition, June oil production was down 3 percent in North Dakota and 9 percent in Montana from year-earlier levels. Agriculture Current crop conditions suggest a good harvest this fall. The USDA reports crop progress near or above the five-year average for corn, soybeans and wheat for most district states. In addition, crop yields look promising as the USDA reports the percent of the soybean crop rated good or excellent is 63 percent for Minnesota and 69 percent for South Dakota. The percent of the corn crop rated good or excellent is 69 percent for Minnesota and 72 percent for South Dakota. Based on results of the Ninth District's third quarter (August 1999) survey of agricultural credit conditions, 87 percent of respondents reported that farm income is below normal levels as compared to 80 percent of the third quarter 1998 survey respondents. The third quarter 1999 survey revealed that 90 percent of respondents reported below normal levels of farm capital spending compared to 72 percent of the third quarter 1998 survey respondents. In addition, a Farm Service Agency survey of Minnesota County Emergency Boards found that 8 percent of Minnesota farmers are at risk of going out of business this year. Employment, Wages and Prices Labor markets remain tight, as companies are still searching for more workers. A credit card company in Sioux Falls, S.D., plans to create 300 jobs over the next two years and a high technology firm in Wahpeton, N.D., is planning to create over 100 new jobs. However, finding workers is proving difficult for many companies. For example, Minneapolis banks report a teller shortage. The lack of workers is causing employment growth to slow. Nonfarm seasonally adjusted employment for the district grew 1.5 percent in July compared to a year earlier, well below the previous four-year average of 2.1 percent. Companies are boosting wages to attract employees. A Minnesota labor representative noted a 4 percent to 5 percent increase in wages and use of overtime, flex time and cafeteria benefit plans to retain workers. Manufacturing wages grew 3.7 percent across the district for the three-month period ending in July compared to a year earlier. Wages for hired workers on farms increased 8 percent to 9 percent in July compared to a year earlier. Overall prices remain stable, except for a few notable increases. Over 70 percent of respondents to a recent informal survey of commercial and industrial companies report steady input and product prices. Several respondents noted that enhanced efficiency and competition have kept prices low. Auto price increases have been modest. Significant price increases include health care, where costs are up 8 percent to 10 percent, according to bank directors. Gasoline and construction inputs are up; plywood has jumped more than 50 percent over the past 18 months. Return to top St. Louis Kansas City