Beige Book Report: Minneapolis
June 23, 1982
The Ninth District's economy entered the month of June in essentially the same weak condition that we have reported for the last several months. In some areas the situation has actually taken a turn for the worse. Recent shutdowns have devastated the district's metal mining. Cold and wet weather have delayed field work and crop development, thereby furthering the woes of district agriculture. Moreover, manufacturing remains depressed and consumers are still reluctant to purchase homes and durables. The only bright spots in our gloomy economic assessment are improved prices for some kinds of livestock and stronger vehicle sales.
Metal Mining
District iron production has been sharply curtailed in recent months
because of weak demand for steel, and district copper output has
been cut back severely as a result of sagging copper prices.
Most district iron mining companies announced shutdowns this spring or lengthened previously-announced shutdowns. In northeastern Minnesota, seven out of eight companies have or will be shutting down operations. Announced closures range from two weeks to 5 1/2 months and may, of course, be extended. In the Upper Peninsula of Michigan, all four iron mines have temporarily or indefinitely stopped production. According to a Department of Interior official, if the mines, which produce 90 percent of the nation's iron are, adhere to announced schedules, 1982 production will decline 25 percent from 1981 levels and will be down 35 percent from 1979 levels when production hit its peak. District copper mines have also shortened production hours. The Upper Peninsula's one large copper mine went from a four- to a three-day work week in early June, and is planning a six-week closure beginning around July 1. In Anaconda/Butte, Montana, where copper production has been declining since 1974, the state's largest copper mine was permanently closed earlier this year. There are rumors that the remaining mine will be closed if prices continue to weaken. According to company and Department of Interior officials, if the firms, which mine 7 percent of the nation's copper, adhere to their announced shutdowns, district copper production in 1982 could decline by as much as one- third from 1981 levels, and 142 percent from 1979, the industry's last good year.
These cutbacks in district metal production have caused serious local unemployment problems. District metal mining employment was 17,500 in March, down 18 percent from a year ago and 214 percent from the peak attained in 1979. Moreover, given recent shutdowns, unemployment in these industries is undoubtedly higher than indicated by the March data. Overall unemployment rates in the Upper Peninsula, northeastern Minnesota, and Anaconda/Butte this spring were 19 percent, 114 percent, and 11 percent, respectively. According to labor market analysts, many unemployed miners have almost exhausted their benefits, and Minnesota state leaders are considering a special program for laid-off workers in the northeastern part of the state.
Energy Mining
The district's energy mining sector has also felt some adverse
impact from the nation's soft economy, but it has been relatively
mild compared to metal mining.
In recent years, gas and oil drilling has been one of the fastest growing segments of the district's economy. Exploration and production employment in Montana and North Dakota increased from 6,900 in 1979 to a current level of 16,900, and these two states currently account for 2 percent of all U.S. crude petroleum production. In 1982, however, exploration activity is expected to be down from a year ago, in part due to the past decline in crude oil prices. In May, for example, there were only 85 active rigs in these states as compared to 198 a year earlier.
However, this slowdown may only be temporary. At least, that is the view of an official for a Minneapolis company doing oil exploration in Montana and North Dakota. He expects activity to pick up, particularly if recent increases in petroleum prices continue. Moreover, because of the considerable lead time between exploration and actual production, the slowdown in exploration has not had a marked effect on oil and gas production.
District coal production, which employs 3,500 workers in Montana and North Dakota and accounts for 9 percent of the nation's output, has also been reduced somewhat. An analyst for a St. Paul-based railroad that hauls western coal indicated that the recession has slowed the growth in coal usage. Even so, he predicts that total 1982 western coal tonnage will still show an increase over 1981 levels.
Manufacturing
Manufacturing remains weak. Forty-nine percent of the manufacturers
responding to a University of Minnesota survey said their new orders
declined in the three months ending in May, and nearly as many (44
percent) said production declined also. The forest products industry
continued depressed. A Montana director, for example, stated that
Montana sawmills are currently operating at 60 percent of capacity
or less, and paper mills at about 75 percent of capacity.
Agriculture
District agricultural conditions remain gloomy. Grain prices have
not improved and remain well below prices of a year ago.
Furthermore, due to wet and cold weather in May, field work and crop
development in the district have been delayed. These delays are
expected to reduce yields somewhat, even though the weather improved
significantly in June. One encouraging development has been the
strengthening in some livestock prices. Between April and May cash
prices at South St. Paul for slaughter steers and hogs rose 7.3
percent and 13.5 percent, respectively. Feeder cattle prices,
however, were essentially unchanged.
Transportation
A strike against a trunk airline carrier took place in May and June;
however, it did not constitute a major disruption of air service. On
May 21, 3,600 members of the International Association of Machinists
struck Northwest Airlines over wages and work rules. On June 8, the
striking workers overwhelmingly rejected a company offer and a
prolonged strike seemed likely. However, a tentative agreement was
reached on June 14 and ratified by over 90 percent of the union
members on June 16. Although the strike did not appear to
significantly disrupt area air transportation, Northwest Airlines
did lay off about 1,700 workers.
Consumer Spending
Consumer spending has shown very limited signs of recovery. Large
Minneapolis/St. Paul retailers and bank directors continue to
characterize general merchandise sales as "soft," particularly for
consumer durables. Directors also indicate that home sales remain
depressed. However, retail sales have improved somewhat from April's
weather-depressed levels. In addition, motor vehicle sales are
showing signs of life. In early April, regional sales managers
reported improved domestic motor vehicle sales, primarily of light
trucks; and in early June, one of these managers reported further
strengthening. His view is that we are well past the bottom for
motor vehicle sales in this area.
Finance
Reflecting the softness in the district economy, directors continue
to report weak loan demand and deteriorating loan quality at
district banks.