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Beige Book Report: Minneapolis

October 27, 1987

Recent economic news from the Ninth District has been generally quite positive. In many areas, labor markets are actually tight. Consumer spending has been mainly favorable, although housing and construction, not surprisingly, have weakened. Among resource- related industries, mining has been exceptionally strong and oil drilling has even perked up a bit. And reports from the region's important agriculture sector are the most positive in some time.

Employment
District labor markets have remained exceptionally strong in recent months. In most states, unemployment rates (not seasonally adjusted) were lower in August than they were a month or year ago. In Montana, the preliminary unemployment rate was 5.8 percent, down from 6.8 percent in August 1986. In North Dakota, the unemployment rate was 3.8 percent, down from 4.1 percent in July and 5.2 percent in August 1986. In South Dakota, unemployment was also 3.8 percent, and nonfarm employment rose slightly over a year ago, reaching its highest August level on record. And in Michigan's Upper Peninsula, the July unemployment rate was 8.3 percent, its lowest since October 1979. Minnesota's labor markets proved an exception to the rule. In the Minneapolis-St. Paul metro area, the unemployment rate increased slightly in August, to 4 percent from 3.9 percent in July and 3.5 percent a year earlier; the Twin Cities' labor force and total employment also declined modestly in August. Labor market developments statewide were similar.

Consumer Spending
Reports on retail merchandise sales have generally been good, except for essentially flat sales in North Dakota. Throughout South Dakota, retail sales were up. In Montana, retail markets also showed signs of recent improvement, especially in the state's western part. One large Upper Midwest retail chain reports that back-to-school sales didn't meet its expectations, but the chain expects much better October sales and is optimistic about the fourth quarter. Another large retailer says September sales were quite good, with fall fashions moving well. For the most part, goods have been selling at regular prices, with few markdowns, and some price increases may be expected in the months ahead.

District sales of motor vehicles have been quite good. One domestic auto manufacturer indicates that September sales were good, even compared to an excellent August. The new 1988 vehicles have been selling well, and more equipment is being included as standard features on these models. Another domestic manufacturer reports that sales are strong, up slightly over the brisk business at this time last year. The manufacturer says consumers can expect about a 4 percent increase in car and light truck prices.

In general, reports on tourist spending have been favorable. In Montana, North Dakota, and western South Dakota, tourist traffic has been up slightly over last year's respectable levels. In the Upper Peninsula, observers say the weather has been perfect. Motel business there has been from 20 to 40 percent higher than last year's.

Although reports are mixed, recent developments in housing and construction run counter to the favorable conditions of most district sectors by showing considerable signs of weakness. In Montana, the housing market has been poor, and new construction there is virtually nonexistent, except in the Great Falls area. In Minnesota, August housing permits fell about 11 percent from a year ago, and in Minneapolis-St. Paul, August permits were down about 22 percent from last year. Multifamily permits have been hit most severely. In North Dakota, housing markets seem a bit stronger than elsewhere in the district. There, sales have bottomed out and prices have firmed, although new construction is low in most of the state.

Resource-Related Industries
The news is good in the district's resource-related industries. In North Dakota, 17 oil rigs are now drilling, and there is renewed interest in oil exploration in the Williston Basin. In Montana, 11 oil rigs are running with 14 total expected to be operating by year- end. Land-lease payments, an important source of extra income to some farmers and ranchers, have risen. Mining operations in the district are also picking up. In South Dakota, two gold mines are expanding output and hiring additional miners. In Montana, two other gold mines are running around the clock, seven days a week, and a third is beginning operations. Elsewhere in Montana, an aluminum plant at Columbia Falls is operating near capacity, and the Butte copper pit mine, closed for a number of years, is back in production and profitable.

Agriculture
Reports from the district's agricultural sector are as strong as they've been in some time. Crops and harvest conditions look good to excellent throughout the district - from the trefoil crop in the Upper Peninsula to cherries in Montana. There have been some complaints about cash small grain prices and, as always, scattered problems with the weather and insects. But the general ag picture has surely improved and the tone of reports received has been upbeat. From Montana: "The small grain crop is excellent. Farmers' financial situation is improving." From North Dakota: "The harvest is going fast and well. Weather has cooperated." From South Dakota: "Farmers are no longer going out of business because of economic stress. Livestock producers are 'out of the hole' and are from 20 to 40 percent ahead of our projections."