Beige Book Report: Minneapolis
October 23, 1984
Modest growth continues in the Ninth District. Unemployment rates and other labor market indicators seem to have improved lately. Some growth in consumer spending is reported, but not for homes. Also reported are scattered signs of commercial and industrial expansion. Indicators of recent financial activity are mixed—strong in the Minneapolis-St. Paul area, but weak in the rural areas, where farmers are facing low prices.
Employment
The latest available data indicate that labor market conditions have
strengthened a bit. Minnesota's unemployment rate fell 0.1 percent
to 6.3 percent in August, reversing two months of slight increases.
Also in August, employment in Minnesota reached an all-time high.
Improvement was particularly notable in the Twin Cities metropolitan
area, where the unemployment rate dropped to 4.5 percent in August.
Indicative of continuing strong labor demand, in August the
Minneapolis-St. Paul help-wanted advertising index was still about
47 percent above its level a year earlier and in September
Minnesota's initial unemployment claims fell again. This Bank's
directors continue to report that unemployment rates in southern
Minnesota and the Dakotas are low and that rates in parts of
Wisconsin and Montana have fallen somewhat.
Consumer Spending
With the exception of sales in agriculturally dependent cities and
towns, retail sales of general merchandise appear to be following
the trend of modest growth reported last month. One large retailer
in the Twin Cities reports that its back-to-school promotion went
well, particularly in September. Its sales figures are still running
ahead of plan. It and another large retailer in the Twin Cities say
that apparel sold particularly well. Bank directors from diversified
cities around the district report similar findings. Large chain
stores in Rochester, Minnesota, report a good September, although
smaller stores weren't doing as well. Mall business was up
considerably in September in Sioux Falls, South Dakota, but only
modestly in Bismarck, North Dakota.
Mirroring reports for the nation, motor vehicle sales in the district seem to have picked up a bit since August. In September, a domestic manufacturer was surprised to find both its car and truck sales in this region up substantially over year-earlier levels. District inventories of vehicles are still low. Some Bank directors in agriculturally dependent areas report that cars and trucks have been moving well there, too.
Home purchases, while still up from levels of a year ago, appear to be falling off. Both Bank directors and district realtors indicate that housing affordability has deteriorated, with high financing costs, prices, and taxes mentioned as factors. Mortgage revenue bonds are helping to prop up sales in parts of western Wisconsin, though.
Tourist spending in the district, which may have been somewhat more restrained this summer than last, picked up with the arrival of the fall color season. In the Upper Peninsula of Michigan, the season started early and is lasting longer than expected. Travel to parks in Montana and the Dakotas has been lower this year than last. While some attribute this to exchange rates inducing Canadians to stay home, in fact more Canadians appear to be crossing the border this year. Canadian tourist dollars appear to be flowing elsewhere than parks.
Commerce and Industry
Scattered reports have been appearing lately about commercial and
industrial production and expansion in the Ninth District. Plans to
build a $100 million office-hotel complex in Minneapolis have been
announced. Some energy production facilities are being built in
North Dakota, where petroleum-related activity is running at a
record rate. However, construction permits are down in Bismarck,
North Dakota. While an auto parts distribution center is being built
in South Dakota, little other new expansion is reported there.
Building products plants, which are benefiting from low lumber
prices, are producing at high levels to meet building demand. While
pulp and paper plants are still very busy, no expansion plans have
been announced recently.
Agriculture
Most of the agricultural sector continues to be plagued by low
prices, low land values, and high debt service, none of which is
likely to improve soon. In Minnesota alone, the farm price index
fell 3 percent between July and August. Despite Soviet purchases,
generally favorable crop conditions may push production up enough to
lower prices further. For example, recent estimates indicate that
the nation's corn harvest will be the fourth largest on record, and
both soybean and wheat production are up substantially over the
drought- and PIK-reduced levels of 1983. Corroborating this,
district Bank directors report favorable crop conditions in the
district, except in the dry areas of the western Dakotas and
northeastern Montana. They also continue to report severe farm debt-
service loads. The only ag producers with some reason for optimism
seem to be those selling meat animals. Lower feed prices are
improving the profitability of hog and livestock operations, and
cattle prices have picked up a bit recently.
Finance
The financial sector reflects the continuing trend of urban economic
growth outstripping rural growth. Both deposits and loans at large
Twin Cities banks have been growing faster than their national
counterparts. From mid-August to mid-September in the Twin Cities,
large bank deposits and loans grew 1.7 percent and 2.8 percent,
respectively. The comparable national figures were only -0.1 percent
and 1.1 percent. Consumer loan growth has been particularly strong
in the Twin Cities. Financial activity in the rest of the district
seem to be slower, though, according to this Bank's directors.