Beige Book Report: Minneapolis
June 23, 1993
The pace of the Ninth District economy appears to have picked up somewhat from the moderate growth reported in mid-April. Construction and real estate continue to improve and lead the economy. New automobile sales remain good, while consumer outlays on general merchandise may be rebounding after sagging this spring. Moreover, tourism officials are optimistic about the summer season. Developments in manufacturing and mining signal improvement, while labor markets are strengthening. Meanwhile, livestock prices are strong and production is above year-earlier levels. While cold, wet weather has severely delayed grain planting, it has helped ensure that soil moisture levels are adequate across virtually all of the Ninth District.
Construction and Real Estate
Construction and real estate lead in adding strength to the economy.
Minneapolis-St. Paul real estate brokers had their busiest May in
recent history as the area's single-family home sales leaped 34.4
percent to 4,224, compared with the same month last year. Brisk
sales are boosting prices as the median sales price rose to $96,600
in May, a 5.5 percent increase from a year earlier. Minneapolis/St.
Paul home builders are responding, and in April 1,631 new-home
building permits were issued, the highest month in at least a
decade. Sioux Falls and Rapid City, S.D., Helena, Mont., and Eau
Claire, Wis., also report strong home sales and construction.
Non-residential building is also strengthening. In April, publicly awarded construction contracts in Minnesota and the Dakotas were 18 percent above April 1992. Year-to-date figures were 25 percent higher. Moreover, recently released figures indicate the Minneapolis-St. Paul office vacancy rates fell to 16.4 percent by the end of 1992 from a high of 20.2 percent in 1991, leading analysts to speculate that the commercial real estate glut has bottomed out. A report from Billings, Mont., described its commercial real estate market as the best since 1978.
Consumer Spending
General merchandise sales may be reviving. "In June, sales are
springing back," says a spokesperson for a regional retailer with
stores across the Upper Midwest. Its May sales were "soft" with
same-store sales 2.5 percent above a year earlier. A Minneapolis-
based national retailer reports that its comparable-store sales were
up 1.1 percent in May after declining 2.1 percent in April.
Moreover, prospects are bright for summer tourism. A tourism official in South Dakota reports inquiries are running about 10 percent above last year, and states, "We're anticipating a strong year this year." In a north central Wisconsin community tourist inquiries are up 70 percent from a year ago in response to its advertising initiatives.
Automobile sales continue to outpace general merchandise sales. An industry spokesperson in Minnesota says, "Sales are increasing and we anticipate a good year." A counterpart in South Dakota reports that "sales are good to very good." A North Dakota dealers' representative recounts "sales continue to be good."
Manufacturing and Mining
Manufacturing shows signs of growth. Year-to-date weather-adjusted
industrial use of electricity is about 4 percent above a year ago,
double its five-year average growth, reports an electrical utility
serving most of the Ninth District manufacturing in Minnesota, South
Dakota and Wisconsin. Moreover, in all district states manufacturing
employment this spring is up from a year ago.
Mining also shows some signs of growth. After posting eight quarters of losses, a large South Dakota gold mine was "back in the black" in the first quarter, due to vigorous cost reduction efforts. Duluth port officials report that the Great Lakes shipping season is off to a good start for iron ore, coal and grain.
Labor Markets
These signs of strength in the district's non-farm economy are
manifesting themselves in improving labor markets. In May, Minnesota
initial claims for unemployment compensation were down 21 percent
from a year ago. Moreover, 51 percent of district business leaders
responding to a May survey said employment in their communities
would be up from a year ago during the next six months. Only 9
percent were looking for employment to decline.
The economy, however, was not immune to layoffs. The recently announced closing of a Sioux Falls credit card center will cost 181 South Dakota residents their jobs. Because of state budget problems, 62 North Dakota residents recently lost their jobs at the State Developmental Center in Grafton.
Agriculture
Livestock continues to be the brightest component in the agriculture
sector, according to comments received in a quarterly survey of
agricultural credit conditions. Although cattle and hog prices have
dropped slightly from April peaks, they are still substantially
above year-ago levels and are very favorable in relation to feed
costs. Slaughter levels are largely unchanged from 1992, but the
numbers of cattle and hogs on farms are up 3 to 9 percent. One
negative note in the meat animal sector is that the spring calf and
lamb crop is at best average because of high mortality resulting
from prolonged cold, wet weather.
Prospects for the 1993 crop are shadowed by weather-induced delays in planting virtually all spring-seeded crops. The Agricultural Statistics Service reports that crop progress as well as planting is behind normal for all crops, though delays are less severe for small grains such as oats, wheat and barley than for row crops such as corn and soybeans. Delays thus far have not irrevocably damaged expected yields but have used up most of the season's margin for error. The weather throughout the rest of the growing season must be very favorable to allow crops to make up for lost time and achieve potential yields. Since soil moisture levels are adequate to surplus, concern now centers on receiving sufficient warmth and sunlight for optimal corn and soybean production.
A survey of 212 agricultural banks showed that interest rates continue to drop, down 25 to 50 basis points from the end of 1992 for all classes and terms of loans and more than one percentage point from the previous year. Bankers also report increased spending on new machinery or facilities in wheat growing areas with favorable 1992 yields and prices, but little change in capital spending in corn-soybean regions, which had a less favorable 1992 outcome.