August 8, 1990
Ninth District economic conditions have been moderately good lately. Labor markets have been strengthening, retail sales have been growing fairly well, and tourist spending has been strong. However, new cars have been selling very slowly, housing activity has been lackluster, and nonresidential construction has been weak. Conditions have been mixed in manufacturing. but resource-related industries have been doing very well.
Employment, Wages and Prices
Labor market conditions have improved after showing signs of
softening in the first four months or the year. Minnesota's
unemployment rate was 4.3 percent in May and 4.2 percent in June.
These rates are sharply lower than April's 5.4 percent rate and also
lower than the 4.5 and 5 percent rates in May and June 1989.
However, there have been reports that many applicants for jobs in
Minnesota are overqualified. This phenomenon has been attributed to
the continuing difficulties of high technology industries in the
state. In the rest of the district, unemployment rates have been
stable.
Wage and price increases have remained at a moderate 3 to 5 percent rate in the district. A manufacturer of wood products in the Minneapolis-St. Paul metropolitan area reports that wage and benefit packages have been increasing at a rate of around 4 percent. A contractor in the Upper Peninsula of Michigan reports that, in spite of strong demand for workers, wage and benefit packages have been increasing at only a 3.5 percent rate. However, costs in agriculture are reported to be increasing at a more rapid rate. The costs of producing corn and soybeans are reported to be 6 to 10 percent higher than last year, with most of the increase reflecting higher rental rates on land.
Consumer Spending
Retailers of general merchandise in the district report fairly good
sales growth. One retailer reports that, compared to a year earlier,
sales in June were up 4.1 percent and sales in the first half of the
year were up 8 percent. Another retailer reports that sales in June
were 8 percent higher than a year ago. In North Dakota and Montana,
retailers report that their sales have continued to grow strongly,
due mainly to Canadian shoppers. Inventories are reported to be at
acceptable levels.
Tourism remains the brightest spot in the district's economy. In the Upper Peninsula of Michigan, tourist spending is said to have doubled over the last two years. In Montana, it has remained strong.
New car sales, however, have continued to be soft in the district. One dealer reports that sales in the first half of 1990 were 25 percent below a year earlier. Still, many dealers report signs of improving sales in late June and early July and are optimistic about sales prospects in the rest of the year. Inventories of cars and trucks are reported to be at satisfactory levels.
Housing activity has shown signs of slowing in the district. The number of new housing permits issued in Minnesota was 7.8 percent lower in May than a year earlier. At the same time, the number issued in the Minneapolis-St. Paul metropolitan area was 9 percent below a year ago. There have also been reports of a decline in the prices of high-priced homes.
Nonresidential Construction and Manufacturing
Conditions in the nonresidential construction industry have been
weak, particularly in the Minneapolis-St. Paul metropolitan area.
There an overhang of commercial and office space is reported to be
depressing new construction. The construction sector in this area is
expected to shrink over the next few years until the overhang is
absorbed.
Conditions in the district's manufacturing industries have been mixed. Suppliers to the aircraft industry and manufacturers of capital goods report fairly good business. But the electronics industry and defense suppliers have continued to struggle. A supplier to the residential construction industry says its firm is "in a recession."
Resource-Related Industries
The district's resource-related industries appear to be very
healthy. Generous rainfall throughout the district has improved the
outlook of farmers. However, in some areas too much rain has damaged
corn and soybeans. In northern Minnesota, for example, about 5
percent of the soybean acreage was not planted because the fields
were too wet. Still, farmers and ranchers have had record volumes of
meat production as well as record prices. Reservoirs in Montana are
reported to be filling up for the first time in many years.
Meanwhile, the forest product industries remain strong despite
concerns that logging activity would be hurt by environmental
regulations. The mining industry continues to do well.