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Beige Book Report: Minneapolis

August 9, 1989

Ninth District economic conditions have been mixed. While the Minnesota labor markets have shown signs of weakening, those in other states have not. Consumer spending has been fairly strong, but housing activity has been weak and automobiles sales have been flat. Conditions in resource-related industries have been mixed.

Employment
The district employment situation has been mixed, with some signs of increased unemployment in Minnesota. The unemployment rate in Minnesota in May was 4.9 percent, 0.6 percentage points higher than in April and 0.8 percentage points higher than in May 1988. The unemployment rate in the Minneapolis/St. Paul metropolitan area was 3.8 percent in May, unchanged from April and 0.6 percentage points higher than in May 1988. A director reports that turnover among employees was lower than earlier in the year and that it had become easier to hire employees in the last two months. A major manufacturer of electronics, control systems, and defense items headquartered in Minneapolis announced a restructuring which would eliminate about 4,000 jobs worldwide out of its current total of 78,000 employees. The 14,000 jobs include 300 that were already cut earlier this year from its corporate headquarters.

The unemployment rate in North Dakota fell to 3.7 percent in May from 4.5 percent in April and 4.6 percent in May 1988. The unemployment rate in South Dakota in May was 3.7 percent, a slight increase from the 3.5 percent rate in April and unchanged from the 3.7 percent rate in May 1988. The unemployment rate in Montana dropped sharply in May to 5.5 percent from 7.2 percent in May 1988, and in the Upper Peninsula of Michigan the unemployment rate in April was 9.3 percent compared to 10.3 percent in April 1988. A director reports tight labor markets in Western Wisconsin.

Consumer Spending
Consumer spending on general merchandise has continued to be fairly strong. One retailer reports that sales in June were 14.2 percent higher than in June 1988. Some of the increase was due to opening of new stores; stores which were in operation last year had 6.1 percent higher sales in June than a year ago. Inventories remained at acceptable levels. A retailer reports that it reduced the number of sales promotions and sold more items at full price, thereby helping profit margins.

Automobile sales have recovered from low levels in the first quarter but have been generally lower than a year ago. A domestic manufacturer closed its truck-building facility in St. Paul for two weeks because of slack demand for pickup trucks. Dealers report sharply lower profit margins from a year ago. A director remarked that sales of recreational vehicles, boats, and campers, which are usually strong at this time of the year, "have completely dried up."

Housing activity has been sharply lower than a year ago. The number of new housing permits issued in Minnesota in May was 27 percent lower than in May 1988. The number of new housing permits issued in the Minneapolis-St. Paul metropolitan area in May was 32 percent lower than a year ago. June home sales in the Minneapolis/St. Paul area were 7.6 percent higher than in June 1988 but 7.3 percent lower on a year-to-date basis. The decline in residential construction was offset to some extent by an increase in nonresidential construction. The dollar value of contracts for future residential and nonresidential construction in the Minneapolis-St. Paul area was unchanged in May from a year ago.

Tourist spending has been fairly strong. Contacts in Western Wisconsin report that the bed-and-breakfast business is booming and that many resorts are booked into the fall. The number of tourists visiting the Upper Peninsula of Michigan was reported to be 5 percent higher on a year-to-date basis than a year ago. A director reported that the number of tourists in Montana was 12 percent higher this year than the same period last year.

Resource-Related Industries
Conditions have been mixed in resource-related industries. North Dakota, which earlier was expected to have a record grain crop, has now declared a large part of the state as a drought area. However, the barley and sugar beet crops in North Dakota were reported to have been doing well. In western Minnesota, millions of honeybees were killed by spraying intended for grasshoppers, creating potential losses not only of honey but also of crops that bees pollinate. The mining industry was reported to be doing well throughout the district. A Colorado company plans to buy a bankrupt Minnesota mining firm and reopen an iron mine and a taconite processing facility in Minnesota by early 1990. Reports from the lumber industry were somewhat mixed with some signs of slackening demand and continued raw material shortages attributed to environmental problems.