March 15, 1988
Despite slower consumer spending than a year ago, the Ninth District's economy held firm in the opening months of 1988. Labor market conditions remained strong. Although residential construction slowed, nonresidential building projects were under way. The district's wood products industry has been thriving, and the news for agricultural producers has been encouraging.
Labor Markets
As 1988 began, district labor markets held firm, with only normal
seasonal employment declines, mainly in the construction and retail
sectors. These declines brought down unadjusted employment figures
in the district. Even so, Minnesota's unemployment rate in January
was still a bit less than the nation's, and the Minneapolis-St. Paul
metro area's unemployment rate was fully 1.6 percentage points below
the nation's. Another sign of continuing labor demand in Minnesota
was evident from the decline of initial unemployment claims, down
3.8 percent in January from its January 1987 level. Also, the most
recent seasonally adjusted data show Ninth District employment
rising in December 1987, accompanied by a drop in the district's
unemployment rate.
Scattered labor-management disputes were reported recently. The largest is between flight attendants and management of the district's major airline.
Consumer Spending
Retail spending on general merchandise does not appear to have been
strong in recent months. One large retail chain reports that stores
it has owned for at least a year had slightly lower sales results
this February than last, although year-ago sales were particularly
high. Still, the sales dearth has left the stores with above-average
inventories. A second retail chain corroborates these findings.
However, another chain reports that favorable weather helped it
attain double-digit sales increases in February.
Sales of motor vehicles appear to be surprisingly strong, especially when last year's good performance is considered. In particular, one domestic manufacturer's truck sales were 19 percent higher through February than they were in 1987, That manufacturer's car sales were up a more modest 7 percent through February 1988.
Housing activity slowed considerably early in the year, but it may have picked up a bit in February. In Minneapolis and St. Paul, home sales were 35 percent lower this January than last, well off the record pace of March 1987. In the Twin Cities metro area, housing permits were way down in December 1987, dropping over 42 percent below year-earlier levels. And residential construction contracts in Minnesota were down 19 percent over the same period. One Bank director says that this slowing can be partly accounted for by the October 19 plunge in stock prices, which he believes has led to decreased sales of high-priced homes. But a leading Twin Cities realtor notes that the pace of sales accelerated somewhat in February.
Reports on tourist spending have been mixed. In Montana warm, dry weather has hurt some ski resorts. Adopting a novel approach to controlling state government costs, Montana plans to use state prison inmates to field out-of-state tourist inquiries. In the Upper Peninsula of Michigan, all indications point to a record year.
Nonresidential Construction
In contrast to residential construction, nonresidential construction
for infrastructure has not fallen off in some parts of the district.
While down somewhat in Minnesota during December, nonresidential
building contracts in January were three times higher than in
January 1987. Most of the growth was in public infrastructure
projects for highways, bridges, and sewer and water systems. A
newspaper editor notes much interest in civic projects in the Fargo-
Moorhead area on the border of North Dakota and Minnesota—projects
including an expansion of its civic center, a new performing arts
center, and a small indoor stadium. A director of this Bank's branch
in Helena, Montana, mentions $25 million in defense construction for
this year at the air force base in Great Falls.
Wood Products
The wood products industry, one of the district's largest
manufacturing industries, is currently thriving, with products
ranging from lumber to chopsticks. In Minnesota alone, over $1
billion in new capacity has been committed since 1979; the latest
project, announced in February, is an expansion of capacity to make
a plywood substitute. In Montana, a pulp and paper mill reports that
business is very good, with prices at all-time highs. A major lumber
producer notes the healthy state of the industry, with most
producers operating in the black. Among producers, the pine beetle
remains a continuing cause for concern.
Agriculture
More good news cropped up in the agriculture sector recently. The
Minnesota farm price index rose in February, with increases reported
both for livestock and for major crops. In addition, the federal
government's Farmers Home Administration (FmHA) announced a plan to
forgive as much as $7 billion in bad farm debt. This was welcome
news to over 2,000 Minnesota farmers with seriously delinquent loans
at the FmHA.