May 6, 1986
Since year's end, conditions have not changed much in the Ninth District. Early in the first quarter, employment grew slightly. Overall, consumer spending growth was modest, with the exception of large gains in housing. Resource-related industries remained mixed, with good performance in the wood products sector but poor conditions in the energy sector. The agricultural outlook has not improved. Agricultural banking issues dominated the district's finance sector.
Employment
Overall, district employment conditions stopped deteriorating early
in the first quarter, but they may now be declining in the oil-
producing regions. In February, district states' unemployment rates
hardly changed at all, and total employment grew in Minnesota, the
Dakotas, and Montana during that month. But employment in durable
goods manufacturing continued to falter. In Minnesota, this was
largely due to a downturn in computer equipment manufacturing. Due
to recent declines in oil prices, North Dakota's unemployment rate
rose in March.
Consumer Spending
Retail purchases of general merchandise grew moderately. Although
two department store chains in the district sold more than planned
during the first quarter, sales at both slowed early in April. The
chains' credit sales have been growing rapidly and are now being
scrutinized for signs of deteriorating quality. Inventories were not
excessive at either chain. Two big discounters report good sales
generally throughout the district. However, bank directors say sales
have been spotty outside the Twin Cities metro area, with flat sales
in parts of Montana and western North Dakota but growing sales at a
large shopping mall in Duluth, Minnesota.
Sales of motor vehicles have leveled off and may even be below year earlier levels. For one large domestic manufacturer, district car sales were running 16 percent below last year's level, while its truck sales were down 4 percent since a year ago. New car sales were weak in both western Montana and Bismarck, North Dakota, but were good in Fargo, North Dakota, and Pierre, South Dakota.
Housing activity has been generally quite strong. Realtors report that more homes were sold during March in the Minneapolis-St. Paul area than during any other previous month. Requests for FHA appraisals in the Twin Cities were also higher in March than ever before. Lower mortgage rates have also been spurring house sales in other parts of the district, including western Wisconsin.
Tourist spending at district ski resorts was mixed this winter. Business at some big Montana resorts was harmed by late starts and high winds. Resorts on the Upper Peninsula of Michigan also had a less-than-desirable season, according to a Bank director. But another director says a resort in northeastern Minnesota that usually loses money actually turned a profit this winter. In preparation for the summer season, many Minnesota resorts are expanding their facilities.
Resource-Related Industries
Conditions among the district's resource-related industries remained
mixed. The wood products industry has been doing well. One Bank
director notes that waferboard production has been going strong and
that its price has firmed; another mentions that a new fiberboard
plant on the Upper Peninsula of Michigan should eventually employ
300 workers. However, wood suppliers for such plants are receiving
low prices for their products. Low prices are also plaguing the
district's energy sector. As a result, active oil and gas drilling
rigs are almost nonexistent in North Dakota and Montana. Although
coal production in Montana has increased, coal prices have dropped.
Agriculture
Conditions remained poor in the agriculture sector. This Bank's late
March survey of rural bankers in the district found little cause for
optimism. The surveyed bankers say their customers' net farm
earnings and farmland values fell below year-earlier levels. The
Minnesota farm price index didn't rise from its low level in
February. Wet weather has impeded early field work in Minnesota,
although the moisture should help crops grow later. Drought
conditions affecting the wheat-growing area of northeastern Montana
have eased.
The U.S. agriculture department's dairy herd buy-out program has received much attention.. Nearly 10 percent of Minnesota's dairy farmers will be paid a total of $145 million to shut down operations for at least five years. The participation rate was lower in Wisconsin, according to a bank director. The buy out spurred many farmers to sell off their cows, at least temporarily lowering cattle prices and infuriating ranchers.
Finance Agricultural banking issues predominated in the district's finance sector. A group of seven rural Minnesota banks announced a program for reducing interest rates on farm loans secured by real estate, The Minnesota legislature enacted an interest buy-down program for farm loans, and participation has been so heavy that the program's budgeted funds have already run out. However, Minnesota's governor has promised continued funding for the program.