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Beige Book Report: Minneapolis

December 5, 1990

Ninth district economic conditions have been showing signs of weakness recently. Labor market conditions have been mixed. Growth in spending on general merchandise has slowed down lately, automobile sales have been sluggish and housing activity has declined. Conditions in construction and manufacturing have been mixed. Resource-related industries have been doing very well. Wage and price increases have remained moderate.

Employment, Wages and Prices
Labor market conditions have been mixed in the district. Minnesota's unemployment rate was 4.5 percent in September, up slightly from 4.3 percent in August and 4.2 percent in September 1989. Unemployment rates in Montana, South Dakota, and the Upper Peninsula of Michigan were slightly higher in September than their levels a year ago. Unemployment rates in western Wisconsin and North Dakota fell slightly over the same period. The number of people employed in the district was about 1.0 percent higher in September than in September 1989. In the Minneapolis-St. Paul area, computer and electronics firms have continued to reduce the size of their workforce but demand for hospital and medical workers is reported to have been strong.

Wage increases have remained moderate. However, employers throughout the district report that medical insurance costs have continued to rise sharply. Price increases, except for fuel costs, have been moderate, A construction contractor reports that costs are expected to increase 4 to 6 percent in the first half of 1991 but does not expect to be able to pass along cost increases fully to customers.

Consumer Spending
District retailers of general merchandise report a slowdown in sales growth lately. One major retailer reports that October sales in comparable stores were 2.4 percent higher than a year ago and sales in the first 10 months of the year were up 4.7 percent over last year. A discount chain store reports that October sales were 1 percent lower than a year ago and an appliance retailer reports no change in sales over the same period. Retailers in North Dakota, Montana, northern Minnesota, and Michigan's Upper Peninsula report strong sales to Canadian shoppers. Throughout the district, inventories are reported to be at acceptable levels.

New car and truck sales have been sluggish lately. Dealers report that truck sales in early November were about 7 percent lower than a year ago. Reports of new car sales range from a 2 percent increase to a 15 percent decrease over the same period. Automobile dealers report that they expect sales in the first quarter of 1991 to be about 1 percent lower than the first quarter of this year.

Housing starts have continued to decline in Minnesota. The number of new housing permits issued in that state was 8 percent lower this September than last. This decline was concentrated in the Minneapolis-St. Paul metropolitan area where the number of new housing permits declined by 12 percent over the same period. Sales of existing houses in this metropolitan area had been holding up well earlier in the year but fell by 34 percent this October from last October. Housing activity elsewhere in the district has been moderately good.

Tourist spending has been fairly strong, especially in areas near the Canadian border. Thus far this year, Canadians have reportedly made over 700,000 trips to North Dakota-a number which exceeds the population of that state. The number of tourists visiting Mount Rushmore in South Dakota was about 4 percent higher this year than last. The city of Deadwood, South Dakota, has grown explosively ever since legalized gambling was introduced about a year ago.

Construction and Manufacturing
Conditions in the district's construction industry have rebounded recently. In the Minneapolis-St. Paul metropolitan area, the dollar volume of contracts for future construction had been substantially below 1989 levels but rose sharply in September when it was 35 percent higher than in September 1989. However, it is expected that construction activity in this area will decline in the coming months. Elsewhere in the district, construction activity has been moderately good.

Conditions in the district's manufacturing industries have been mixed lately. The computer and electronics industries have continued to be in very poor shape and suppliers to housing construction report slow sales. However, aircraft industry suppliers and the medical instruments industry have been growing rapidly. Manufacturers generally report strong export demand, especially for capital goods.

Resource-Related Industries
The district's resource-related industries appear to be fairly healthy. Agriculture appears to be in good shape. Crop yields throughout the district have been excellent. There was very little rain in the district this fall which helped farmers dry their fall harvest. However, the lack of rain has also raised concerns about a possible drought next year. Good crop yields have been offset by a fall in prices of farm products so that farmers' incomes are not much changed from last year. However, farmers' balance sheets are reported to be fairly healthy and farmland values are reported to be rising fairly rapidly. Livestock ranchers report that this year has been the best in their experience. The mining industry has also been doing well. Oil exploration has been picking up recently, especially near proven fields.