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Beige Book Report: Minneapolis

November 1, 1989

Ninth District economic conditions have been fairly good. The employment situation in the district was fairly good. Despite layoffs caused by the restructuring and size reduction of the computer industry in Minnesota, the unemployment rate in Minnesota has declined. Consumer spending on general merchandise has been strong, automobile sales have continued their recovery from low levels earlier in the year, and housing activity has shown signs of improvement. Conditions in resource-related industries have been fairly good.

Employment
The district employment situation has been fairly good. The unemployment rate in Minnesota in August was 3.9 percent, 0.1 percentage points lower than in July and 0.7 percentage points lower than in August 1988. A supercomputer manufacturer based in the Minneapolis/St. Paul metropolitan area reduced its employment by 18 percent, with most of the reductions in Minnesota and Western Wisconsin. A manufacturer of mainframe computers announced plans to reduce employment in Minnesota by 4 percent. This reduction is part of the firm's plans to reduce its worldwide employment by 10 percent. The unemployment rate in the rest of the district was lower than last year. The August unemployment rate in Montana, in particular, was the lowest in ten years at 4.9 percent.

Consumer Spending
Consumer spending on general merchandise has continued to be strong. One retailer reports that sales in September were 10 percent higher than a year ago and were 8.3 percent higher on a year-to-date basis. This retailer also expects sales this Christmas season to be better than a year ago. Another retailer reports that sales at its discount stores were 10 percent higher on a year-to-date basis. A direct-mail marketing company opened a 600,000 square foot warehouse in St. Cloud, Minnesota. Inventories were reported to be at acceptable levels.

Automobile sales have strongly rebounded from a poor first quarter. One domestic manufacturer reports that September car sales in the Minneapolis/St. Paul metropolitan area were 6 percent higher than last year. Car and truck inventories were reported to be very low.

Housing activity has also rebounded from depressed levels earlier in the year. The number of new housing permits issued in Minnesota in August rose by 17 percent from July, although it was 3 percent lower than in August 1988. The number of new housing permits issued in the Minneapolis/St. Paul metropolitan area in August was 30 percent higher than in July and 7 percent higher than in August 1988. Construction activity in Minnesota was lackluster. The dollar value of contracts for future construction in August in Minnesota was roughly unchanged from a year ago.

Tourist spending has been moderately strong. The Upper Peninsula of Michigan reports a 1 percent increase in tourism through September over a banner 1988 season. An unexpectedly large number of tourists visited Yellowstone Park in Montana. However, concessionaires report lower-than-expected spending because of a relatively large number of one-day visits. As part of Montana's centennial year celebrations, about 5,000 horse riders and 2,700 cattle participated in the Great Centennial Cattle Ride, a 60 mile drive from Roundup to Billings.

Manufacturing
There have been some bright spots in district manufacturing, although troubles have continued to mount in the computer and electronics industries. Suppliers to the aircraft industry report an excellent year and great prospects for 1990. A director forecasts that sales of aircraft parts will be 18 percent higher in 1990 than in 1989. Sources of strength were also seen in the capital goods and machine tools industries. However, some observers anticipate some slowing in 1990 because of a decline in new orders. Ordnance and small arms suppliers also report a decline in orders because arsenals are full. A director's survey of several manufacturing firms shows that most of these firms anticipate only slight to moderate increases in sales. Prices of raw materials and labor costs in manufacturing were reported to be rising moderately.

Resource-Related Industries
Resource-related industries have been doing well. Conditions in agriculture varied from moderate to good. Land prices and rents in North Dakota increased from last year. Soil moisture conditions were reported to be adequate or fair. A director reports that range conditions in Montana recovered very well from last year's drought. An agricultural implements dealer in Montana reports that 1989 sales were the best in the 50 years the dealer has been in business. The mining industry continued to have an excellent year. District copper mines, in particular, were doing well partly due to strikers and other problems in copper mines in the rest of the world. The lumber industry in Minnesota continued its expansion, although one major construction project was affected by labor problems. A major paper producer announced plans to expand its paper mill in Northern Minnesota, and it is anticipated that 120 permanent jobs will be created.