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Beige Book Report: Minneapolis

September 8, 1993

The economy of the Ninth Federal Reserve District continues to grow moderately and economic conditions are, on balance, positive. Employment is growing in all district states, and two recently announced large layoffs appear to be the result of corporate restructuring rather than slack demand. On a sector-by-sector basis, construction is dearly quite strong and leads the economy. Manufacturing is improving, especially in small and mid-size firms. Mining output is generally stable, though a recent strike by iron miners has idled production in Minnesota and the Upper Peninsula of Michigan. Agriculture is the one sector with declining output; crop production, especially in Minnesota and the Dakotas, will be down sharply from 1992 levels. Retail sales have apparently slowed somewhat in some parts of the district, but tourism appears stronger after an initially slow start. Price levels are stable, with no indication of inflationary pressures.

Employment
Non-farm employment continues at above year-earlier levels in all Ninth District states. Unemployment rates declined in Minnesota, Montana, South Dakota and North Dakota. Corporate restructuring caused layoffs of 900 insurance workers in Minnesota and 1,200 lumber company employees in Montana that were announced recently. One firm in Rapid City, S.D., announced that it would add over 200 new employees as did another in Hayward, Wis. Another South Dakota firm added a total of 70 workers to its plants in Sioux Falls and Huron.

Construction and Housing
Construction leads the economy. Publicly awarded construction contracts in Minnesota and the Dakotas for July were about 30 percent above July 1992, while year-to-date awards are up nearly 20 percent over year-earlier levels. South Dakota is an especially strong area for all types of construction and employment in this sector is at near-record levels. Residential construction is reportedly the largest element in South Dakota, but commercial construction and public building are also strong. Moreover, a Minneapolis-St Paul building association official said that 1993 would surpass 1992 in terms of units built and dollars spent. Houghton and Hancock, Mich., also report a good construction season as do other regional centers in Montana and Wisconsin.

Manufacturing
Manufacturing apparently is strengthening. Small manufacturing firms in Minnesota report good orders as do media reports from other district states. A utility serving large areas of Wisconsin, Minnesota and South Dakota reports industrial electrical use growing at a rate substantially above the five-year average. Publicly traded manufacturing firms generally report improved business; one evaluation of Minnesota-based corporations notes second quarter 1993 net earnings up l8 percent to 25 percent over 1992 for firms making food products, industrial machinery, biomedical equipment and consumer products.

Mining
Metal mining output is stable. Gold output in Montana and South Dakota metal mines has risen somewhat in response to higher prices. A South Dakota gold operation requested permits for new exploratory drilling, and production has increased at a Montana platinum- palladium operation. However, Montana copper production fell slightly as one mine closed. Iron ore output around Lake Superior was above year-earlier levels until a strike idled two mines in Minnesota and two in Michigan on Aug. 1. No settlement has been reached to date.

Agriculture
Crops in Wisconsin, Minnesota, South Dakota and North Dakota have all suffered extensive damage from excessive rain and flooding. Aug. 1,1993, Agricultural Statistics Service reports estimate that corn production will be down 13 percent in Wisconsin and 30 percent or more in the other affected states, compared to 1992 levels. Soybean production will be down 8 percent In Wisconsin and 22 percent in Minnesota and South Dakota. All wheat production is estimated to be down slightly in the Dakotas, down about 20 percent in Minnesota, but up over 30 percent in Montana. Spring wheat in Minnesota and the Dakotas is reportedly heavily infested with plant diseases, including one that can render the grain unfit for food use. The full extent of damage is not yet clear, but spring wheat prices have risen by one-third since mid-June.

However, reflecting good crop conditions in areas not affected by flooding, soybean and corn prices have subsided from mid-July increases and are now respectively only 12 percent and 5 percent above pre-flooding levels and about even with year-ago levels.

In the livestock sector, cattle slaughter numbers and prices remain slightly above year-earlier levels. Hog prices are about 8 percent above year-ago levels and output is essentially the same. Milk production is down slightly in Wisconsin, but unchanged in Minnesota and other district states.

Consumer Spending and Tourism
Consumer spending is mixed. Retail sales vary across the district in Minnesota, sales tax collections have fallen behind projections, and retail businesses were the poorest performing category in a recent report on publicly traded companies based in that state. But news media and mail managers in regional centers in the Dakotas and Montana report generally good business, and retail employment in Michigan's Upper Peninsula had the strongest growth of any sector. Vehicle sales are reported as steady, except in areas affected by flooding where sales continue to be slack.

The tourism industry is having a good summer season. Montana and western South Dakota, which have been least affected by adverse weather, continue to have the most positive reports, while industry sources in Minnesota and Wisconsin report generally improved traffic after a slow start earlier in the summer.

Prices and Wages
There is little evidence of inflationary pressures. Food prices in general are stable. Gasoline prices continue below year-earlier levels. Housing prices are stable across most of the district, though up somewhat in the larger urban areas. New wage settlements are reported to include small increases in direct wages, although health care costs continue to drive up total labor costs to firms.