Beige Book Report: Minneapolis
January 27, 1988
The year 1987 ended positively for most of the Ninth District's economy. Labor market conditions continued to be favorable. Consumer spending was generally healthy, not crippled by the stock market decline as some had feared. Among resource-related industries, mining and wood products firms were quite active. Agricultural conditions remained stable. Only nonresidential construction appeared to weaken in recent months.
Labor Markets
Labor market conditions in the district continued to be reasonably
favorable. Minnesota's market continued its recent trend of
concurrent increases in employment levels and unemployment rates.
Analysts attribute the unemployment rise to statistical aberrations;
they note that the number of unemployment insurance claimants in the
state has stayed below year-earlier levels. Furthermore, the
Minneapolis index of help-wanted advertising was 13 percent higher
this November than last. In the Dakotas and Montana, only normal
seasonal employment declines occurred during November, leaving
unemployment rates there below year-earlier levels.
Consumer Spending
Retail merchandisers were generally pleased with the results of
holiday sales. One large chain reports a healthy increase in Midwest
sales this December, compared to December 1986. Another big chain
reports that its holiday sales were better than it had forecasted in
October. A smaller group of stores concentrated in smaller cities
experienced double-digit sales growth this December compared to
last, even when excluding new stores. This group also notes that its
profit margins were better than last year. And from eastern North
Dakota, a Bank director and a newspaper editor report good holiday
retail sales there.
District managers of two domestic-vehicle manufacturers ended the year on an optimistic note, expecting 1988 to be as good a year as 1987. Both managers mention that truck inventories were low for this time of year, while car inventories were not.
Housing activity has been fairly normal in recent months. For the usually slow month of December, home sales in Minneapolis and St. Paul were a bit lower than a year ago. But some signs of a pickup appeared elsewhere in Minnesota. Residential building contracts in the state rose significantly this November, and the head of a builders' association says that most builders look to 1988 as being "a pretty good year."
Resource-Related Industries
In general, favorable news continues to be reported about the
district's major mining and resource-processing sectors. Lower
production costs and the lower exchange value of the dollar are
continuing to improve the outlook for iron-ore mining. Indicative of
this improvement is the significant increase in shipments of iron
ore and pellets through the Duluth-Superior Port during 1987. Some
industry analysts predict that, in 1988, total shipments from
Minnesota could increase to their highest levels since the boom year
of 1981, A Bank director notes that in Montana, coal production
increased during November, although oil-drilling activity slacked
off. Elsewhere in the state, additional gold mines are likely to
open. A Helena branch director says that the timber industry in
Flathead County, Montana, was doing the best it has in five years.
Wood products mills are busy in Montana and Michigan's Upper
Peninsula. According to a Bank director, the Upper Peninsula has
also benefited from unusually high copper prices.
Agriculture
Agricultural conditions remained stable in the district. The
Minnesota index at prices received by farmers held steady between
November and December 1987. Cattle prices remained high while hog
prices, which had been plummeting, leveled off. The lower exchange
value of the dollar and bad production conditions overseas are
aiding demand for U. S. crops, helping boost prices for major
district crops, such as soybeans. This Bank's most recent survey of
district farm lenders indicates that they believe farm income
continued to improve in the fourth quarter. The lenders say fewer of
their farm borrowers are loaned up to their credit limits than in
previous quarters.
Nonresidential Construction
Although 1987 was largely a good year for nonresidential
construction, preliminary signs are not as favorable for 1988. In
Minnesota, nonresidential contracts fell during November, to 18
percent below the November 1986 level. A director of this Bank's
Helena branch notes that commercial construction in the Billings,
Montana, area remained strong late in 1987. But in the Minneapolis-
St. Paul metro area, the near-completion of much unleased office and
retail space is dampening the outlook for further commercial starts
in the district's largest market.