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Beige Book Report: Minneapolis

March 10, 1993

The economy of the Ninth District appears to be growing modestly. Consumer spending, especially on retail sales and tourism, together with construction continue to be the engines pulling the economy forward.

Other sectors are less positive. Labor markets are static. Paper producers, squeezed by low prices, have cut output and employment. Some mine production is down and new mining layoffs are reported. Declining crop and milk prices are cited as a cause of reduced farm spending.

Consumer Spending
Consumer spending in January continued above year-earlier levels, as it had through the final quarter of 1992. A major Minneapolis-based general retailer reported January same-store sales up from a year earlier. And an aggressive Minnesota-based national retailer of appliances and consumer electronics reported January same-store sales well over year-earlier figures. News reports from around the district also note good retail sales.

Advisory council members, Ninth District directors and newspapers all report a good winter tourism season across the district.

Construction and Housing
January housing sales and residential construction across the district continued at the strong pace set in the closing months of 1992. Building permit numbers for the Minneapolis-St. Paul area fell from January 1992 but still reached the second-highest January total in 10 years. "One of the biggest problems right now for consumers is that builders have a backlog of new-home orders," commented a Minnesota building association spokesman. And a Sioux Falls, S.D., city planner said, "We're anticipating a very strong construction year."

District directors and advisory council members report plans for new retail outlets in every Ninth District state. Some also note plans for substantial heavy construction in 1993. An Upper Peninsula director says that planned construction in her city is considerably above average and consists of a mix of municipal, residential and commercial projects. A Montana director notes dam, power plant and refinery construction or renovation.

Labor Markets
In spite of strong consumer spending and construction, Ninth District advisory council members describe their communities' economic conditions as "slow," "steady," "mixed bag" and "level." Such comments reflect labor markets, which show little strengthening. Non-agricultural employment declined slightly from December 1992 to January 1993 for most district states. Unemployment rates show slight increases over year-earlier figures.

A supercomputer firm in Wisconsin closed in response to losses at a major financial backer, wiping out 320 well-paying jobs. And 100 hospital workers were laid off in Great Falls, Mont., a significant blow in that small labor market. A Minnesota-based airline will lay off 123 pilots April 1.

Forest Products
The forest products sector faces a variety of problems. Paper mills in Minnesota, Wisconsin and Michigan's Upper Peninsula continue to suffer from excess capacity and depressed prices. One Ninth District advisory council member reports that "industry officials do not expect prices to recover for another three years" and that mills have reduced output and laid off employees.

South Dakota and Montana sawmills face financial pressures from a different source. Timber supplies are tight, due in part to reduced cutting allocations in national forests, and output is down.

Plywood substitutes continue to be a bright spot in the forest industry: plants in Minnesota and Wisconsin are reportedly running at capacity.

Mining
As 1993 opens, metal mining in the Ninth District faces difficulties. Gold mining is unprofitable at current prices, although output remained steady through 1992. One small South Dakota mine closed in early February. Three others remain open but are reported to be considering closures or layoffs. Copper prices are also weak, and a director from Michigan reports that a copper mine, one of the largest employers in the Upper Peninsula, laid off workers and reduced production. Iron mining also continues its slump. Minnesota shipments for 1992 declined about 4 percent for the second consecutive year. On a positive note, one mine called back furloughed workers in mid-February.

Agriculture
The year opened with agriculture in a slight decline. A Minneapolis Federal Reserve Bank survey of agricultural credit conditions showed year-end 1992 farm spending to be slightly down from a year earlier. Most grain prices are down since the beginning of the year, as are dairy prices that have declined 8 percent in Wisconsin since December. Advisory council members report reduced spending and investment by dairy farmers.

Livestock raising enjoys a more positive outlook than crops. Higher beef prices have improved returns to ranchers and feeders, and cattle on feed numbers are up from a year earlier. Hog prices are up, reflecting smaller fall pig numbers.

Weather conditions are generally favorable for the 1993 crop season. There is good snow cover on virtually all fall-seeded crops such as winter wheat and rye, protecting these dormant crops from the cold, although plantings of those crops are down about 25 percent from a year earlier. Snowfalls are adequate to recharge reservoirs in western areas of the district.