fedgazette

District business leaders optimistic about 1997

Ninth District Business Poll

David S. Dahl - Regional Economist

Published January 1, 1997  |  January 1997 issue

The Ninth District appears poised for another year of growth, according to a late-November poll of 289 regional business and community leaders. This growth will come despite the increasing challenge of securing workers, respondents from across the region say. Additionally, the continued growth and tight labor markets are not expected to push up wages and prices.

Eighty-five percent of respondents are somewhat to very optimistic about their communities' prospects in 1997, with respondents from northwestern Wisconsin, Minneapolis/St. Paul and North Dakota more optimistic than those elsewhere.

These sentiments were largely echoed by the Minneapolis Fed's Advisory Council on Small Business, Agriculture and Labor at its November meeting. "The outlook is good, very 'Eisenhowerish,' just like in 1958 when people liked the status quo," says one Twin Cities business member.

Challenges cited by the respondents include implementing new technologies and complying with government regulations.

Most respondents see their communities' economy expanding in 1997
Although most respondents are upbeat about economic growth in their state, others are less so. Montana and South Dakota, two of the district's fastest growing states in the early 1990s, lag the rest of the region when respondents were queried about changes in particular aspects of their local economies between 1996 and 1997.

Respondents' views on consumer spending and housing starts suggest moderate growth. In the district, 40 percent of respondents look for consumer spending to be up vs. 14 percent who expect a decline. Thirty-nine percent see housing starts increasing vs. 19 percent who anticipate a decline. But in Montana, the number expecting a decline exceeds the number anticipating an increase for both indicators; one explanation may be weaker agricultural conditions there than elsewhere. (See Agricultural Credit Conditions)

Respondents are most optimistic about business investment spending. Districtwide, 62 percent look for an increase in their communities between 1996 and 1997, while only 8 percent expect a decline. Furthermore, 41 percent plan to boost their own organizations' capital spending and only 7 percent plan to decrease it. These responses suggest that district nonresidential construction should remain quite strong.

Respondents are also sanguine about employment gains in their communities: 56 percent see an increase next year, while a mere 6 percent see a decline. They plan to do little of this hiring themselves; only 25 percent see their own firms' job rolls increasing, while 7 percent see them shrinking. The Minneapolis Fed's regional forecasting models, though, project modest employment growth in 1997, so respondents may be overly optimistic about their communities' employment prospects. (See District Economic Conditions)

But hiring workers will be a challenge

While the expected increase in employment is open to speculation, problems in hiring workers are not. The district's unemployment rate is expected to average 3.8 percent in 1997, well below the 5.3 percent rate forecast for the nation. Seventy-four percent of respondents indicate that securing workers will be a challenge in 1997.

Tight labor markets, however, are not expected to result in large wage increases. Only 19 percent of respondents see their communities' wage increases exceeding 4 percent in 1997. The largest wage increases are expected in North Dakota and the smallest in Montana, where the economy is expected to be weakest.

Respondents also look for little cost pressure from nonlabor costs; only 17 percent of respondents view securing nonlabor inputs as a challenge or serious challenge. With both labor and nonlabor cost pressures in check, only 32 percent of respondents expect the prices on their firms' goods and services to be raised in 1997.

Moreover, respondents also look for modest price increases generally. Between 1990 and 1996 the consumer price index (CPI) rose around 3 percent, and 55 percent see it rising at that rate in 1997. About half the remaining respondents see the CPI rising faster and the other half slower.

New technologies and government regulations also pose a challenge

While respondents' views on their communities' prospects and hiring difficulties varied by region, they were quite uniform when asked about the challenges new technologies and government regulations pose. From 49 percent of respondents in Montana and the Upper Peninsula to 61 percent in North Dakota, district business and community leaders indicated that implementing new technology posed a challenge or a serious challenge for their organizations in 1997. Furthermore, between 55 percent of respondents in Minneapolis/St. Paul and 67 percent in North Dakota stated that complying with government regulations posed a challenge or a serious challenge for their organizations in 1997. Most respondents, however, do not see foreign competition as a challenge.

Respondents' outlook for the regional economy next year is premised on continuing expansion in the national economy. Fifty-two percent of respondents see real gross domestic product increasing 3 percent in 1997, its average increase since World War II. However, 35 percent think it could be weaker, while only 12 percent expect it to be stronger.

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