According to a recent poll of district business leaders that is consistent
with the Minneapolis Fed's regional forecasting models, a slow-moving
economy is predicted for the Ninth District in 2002. Current weak conditions
indicate that the district economy has slowed in step with the nation,
which fell into a recession in March 2001.
District employment conditions have weakened as mining, transportation
and manufacturing industries have slowed. For 2002, the forecast
model and the business poll both point toward decreases in employment,
while wages and prices are expected to increase modestly. Agricultural
conditions in 2001 were mixed; drought hampered Montana farms and
ranches, while Dakota farmers reaped the benefits of strong harvests
and profitable cattle prices. The agricultural outlook for 2002
hinges in part on the pending farm bill.
Labor markets weaken
Nonfarm employment in October dropped by 0.3 percent nationally
and in the district compared with the same month a year ago. District
employment in mining, manufacturing and transportation decreased
by 3 percent or more. Meanwhile, the construction, services, government,
and finance, insurance and real estate sectors posted modest employment
growth, while retail and wholesale trade employment remained level.
Mining employment in the district decreased 5 percent, in contrast
to a 3 percent increase nationally. Several iron ore mines in northern
Minnesota and Michigan's Upper Peninsula shut down or cut production
in 2001. Meanwhile, the Montana mining industry is generally depressed,
according to a state mining official.
District transportation employment took a steep dive following
Sept. 11, dropping at a faster rate than the national average. Labor
statistics reflect heavy layoffs by Northwest Airlines, including
4,500 jobs in Minnesota.
The district's manufacturing sector posted 53,000 fewer jobs in
October compared with a year earlier as manufacturing languished
throughout the year. According to a Creighton University survey,
manufacturing production decreased for the first 11 months of 2001
in Minnesota, while production in the Dakotas was mixed. Plant closings
and employee layoff announcements continued throughout late 2001.
While labor markets have loosened, the workforce has continued
to post gains in productivity. Most respondents to the outlook poll
reported positive gains in productivity during 2001 (see "Business
leaders pessimistic for 2002"). Productivity, defined as
the amount produced during an hour worked, grew nationally at an
average of almost 2 percent during the first three quarters of 2001
compared with the same period last year.
The district unemployment rate increased to 4.2 percent in the
fourth quarter of 2001, up from 3.3 percent a year ago. The Minneapolis
Fed's forecasting model expects the district unemployment rate to
climb to 5.3 percent by the fourth quarter of 2002 (see Ninth
Construction slows; price increases are modest
After a strong performance during the previous five years, heavy
construction, such as buildings, roads and sewer systems, weakened
in 2001. Contracts awarded for heavy construction projects decreased
3 percent in Minnesota and the Dakotas during the first 10 months
of 2001 compared with last year, according to the Construction
Bulletin. The slowdown in construction was led by a 12 percent
decrease in contracts awarded for private buildings. This coincides
with reports by Minneapolis-St. Paul commercial real estate firms
of climbing vacancy rates and increases in sublease office space
in the local area during 2001.
The construction slowdown in 2001 followed four years of strong
growth. From 1996 to 2000, district construction increased at an
annual average of 9 percent, which spurred strong gains in construction
employment and wagesboth have moderated in 2001.
Meanwhile, existing home sales and new-home building have kept
pace with year-earlier levels as relatively low mortgage rates have
helped reduce the cost of home purchases. During the first three
quarters of 2001, existing home sales in the district increased
3 percent compared with the same period a year ago. In addition,
district housing units authorized increased 1 percent during the
first 10 months of 2001 compared with last year. The forecasting
model expects housing units authorized to increase in most district
states during 2002.
As district economic conditions have slowed, wage and price increases
have been modest and are expected to remain in check during 2002.
For the first 10 months of 2001, manufacturing wages increased 2.7
percent, down from 3.2 percent during the same time period in 2001.
Results of the outlook poll indicate that wage and salary growth
is expected to remain at 3 percent or below in most district communities.
Since 1992 the U.S. Consumer Price Index (CPI) has increased at
an annual average rate of 2.7 percent per year. Consumer prices
remained contained in 2001; in October the CPI increased 2.1 percent
compared with the same month a year ago. Outlook poll respondents
expect only modest price increases next year; only 21 percent expect
to increase prices for their products, down from 44 percent in last
Through adversity, farmers survive the year
Agricultural conditions were mixed across the district in 2001.
Crop prices remained low, while cattle and hog prices were strong
for most of 2001. Tough weather conditions, including a late, wet
spring, resulted in crop production that was lower than in 2000
for many district farmers. In addition, continued drought has disappointed
farmers and ranchers in Montana. However, farmers and ranchers in
the Dakotas had a strong year, with favorable weather conditions
and cattle prices.
Average Farm Prices
|Corn (current $ per bushel)
|Soybeans (current $ per bushel)
|Wheat (current $ per bushel)
|All Milk (current $ per cwt)
|Choice Steers (current $ per
|Barrows & Gilts (current
$ per cwt)
The outlook for agricultural producers is mixed. Estimated prices
for basic farm commodities like wheat, corn and soybeans remain
low. Dairy prices are expected to dip in 2002. However, estimates
for certain livestock prices decreased somewhat but remain at healthy
levels. On the bright side, the progress of the South Dakota and
Montana winter wheat crop is ahead of the five-year average and
over half the South Dakota crop is rated as good or excellent.
In 2000, government payments represented 20 percent of total revenues
for agricultural producers in Minnesota, Montana and the Dakotas.
As Congress debates a new farm bill, producers are uncertain about
Lenders are pessimistic about the future of their farm customers,
according to the Minneapolis Fed's (November 2001) agricultural
credit conditions survey. Sixty percent of respondents expect
profits to be below normal over the next quarter. Montana respondents
were the most negative: Nearly 90 percent anticipate below-normal
profits, compared with half the South Dakota respondents. The outlook
for capital spending was nearly the same across all states; an average
of 65 percent of lenders anticipate below-normal levels.