Beige Book Report: Minneapolis
March 9, 1994
In spite of unseasonably cold and snowy weather, the economy of the Ninth Federal Reserve District continued to grow in January and February 1994. Construction remains strong in comparison to past years, and commitments to new projects indicate that the spring and summer construction season is likely to be active. Markets for existing housing are tight. Manufacturing sales apparently are strong and output of building materials has increased. Mining and energy output is stable. In agriculture, anticipated plantings are up from 1993, and livestock numbers remain high. Consumer confidence in Minnesota is at a five-year high, and retail spending throughout the district is reportedly vigorous, especially for cars and light trucks. Winter recreation businesses are generally having a good season. Employment levels are 2 percent to 3 percent above year- earlier levels in most Ninth District states, and unemployment rates generally remain below the national average. Overall there is little evidence of upward pressure on wages or prices.
Virtually all areas of the Ninth District experienced extended periods of extremely cold weather and high snowfalls in January and February, but the overall economic effects apparently were not large. Construction is normally slow in winter, and recent cold spells did not abnormally reduce activity. Retail sales were reportedly depressed on very cold days, but rebounded when the weather moderated. Cold weather made some livestock care more difficult, but has not noticeably affected output. A few ski areas reported slack business during cold periods, but snowmobiling was not reduced, and overall winter recreation activity is good. There are concerns about spring flooding along some rivers and that ice could delay the 1994 Great Lakes shipping season.
Construction and real estate
Sources from all areas of the district continue to report that
construction is very strong. "Construction for housing and retail is
already backed up," reported a community leader from Grand Forks. N.
D. "There are many new home starts and there is a renewed interest
in multifamily housing,' said an advisory council member from
northwest Montana. Building industry spokespersons in Minnesota and
South Dakota indicated that the pace did not slacken appreciably in
January in spite of cold weather. Markets for existing residences
were strong in virtually all metropolitan areas of the district. In
Minnesota and the Dakotas, publicly let contracts in January for
large buildings and heavy construction were nearly double year-
earlier levels and industry spokespersons expect a busy season for
medium and large projects. Construction on two $l00 million plus
buildings in downtown Minneapolis will begin in 1994. And a major
real estate company noted that office vacancy rates in Minneapolis-
St. Paul stood at 16.3 percent at the end of 1993, down from 20.4
percent a year earlier, signaling some easing of a prolonged glut.
Manufacturing and natural resource industries
A recent newspaper report described sales and earnings growth for 11
Minneapolis-St. Paul manufacturers as "torrid" and cited a regional
fund manager who argued that these firms were "beneficiaries of an
improving economy." Industrial use of electricity continues to grow
at about twice its five-year trend in Minnesota and South Dakota.
Two Minnesota-based snowmobile manufacturers reported record sales
and earnings. Also, Wisconsin chicken processing and brewing firms
announced that they would double output. New small factories for
automotive equipment and environmental controls were announced for
South and North Dakota, respectively.
Building-related manufacturing is particularly active; one advisory council member from west-central Wisconsin noted that two window manufacturers in his town were enlarging their factories. Production of oriented-strand board and other wood-based plywood and lumber substitutes continues strong in Minnesota, Wisconsin and Michigan. Demand for sawn lumber from Montana and South Dakota is reportedly high, but output remains below historic levels due to limitations on timber sales from federal land. Paper output from virgin pulp is unchanged from a year ago, but production of paper from recycled inputs has raised total production slightly.
Crude petroleum production and drilling activity were essentially unchanged while refinery output in January and early Feburary was about 9 percent above year-earlier levels. Mining shows little change from recent reports. Copper and gold output apparently remains steady from late 1993. New gold mines continue in the planning or permitting process in South Dakota and Montana, but are not expected to be in production this year. Iron ore officials continue to anticipate that production in the 1994 season will be the highest thus far in the 1990s, though there are concerns that unusually heavy ice coverage on the Great Lakes will delay opening of the shipping season by two weeks or more.
Agriculture
As farmers approach the spring tillage season they are described by
one extension economist as "guardedly optimistic" about the 1994
crop season, despite concerns about potential flooding in some
areas. Favorable prices combined with zero set-aside requirements in
price support programs point to slightly higher planted acreages
this year. A major sugar beet cooperative announced that it will
expand its planted acreage by 5 percent. The National Weather
Service announced that there was a high probability of spring
flooding in some Minnesota and Dakota river basins.
Cattle numbers are higher than a year ago for the district as a whole. Hog numbers are largely unchanged. Newspapers reported that cold weather caused cattle raisers some difficulties with early calving, and there was some speculation that the weather might reduce survival of newborn pigs, but there is little evidence that production was reduced to any significant degree.
In an indication that flood-related financial stress may be easing, banker expectations of farm income and spending for the next three months rose somewhat from earlier in the year, according to a Ninth District survey of agricultural credit conditions at the end of fourth quarter 1993. Agricultural interest rates were unchanged to slightly down.
Consumer spending and tourism
"Retail trade is strong." reported an advisory council member from
eastern North Dakota whose views are echoed by his colleagues,
directors and other sources across the Ninth District. He noted that
retail sales were slow on extremely cold days but rebounded when
weather moderated. The owner of a Wisconsin chain of auto repair and
accessory shops reported record sales in January. A consumer
confidence poll conducted in Minnesota in early February showed the
highest level since December 1989. The increase was largely
attributed to statements of increased willingness to spend on
appliances and other major items. Vehicle sales continue above year-
earlier levels in all states.
Winter tourism was strengthening in late February after somewhat slower business in late January and early February. Skiing in the Upper Peninsula of Michigan was down slightly for January and February due to cold weather, but out-of-state snowmobilers kept their vacation plans in northern Wisconsin. Numbers of both skiers and snowmobilers are steady on South Dakota trails compared to year- earlier levels. Canadian traffic continues to lag in border states: one Montana ski resort near the border reported a 7 percent drop from last year, though ski business for the whole state was about even with last year.
Employment, prices and wages
Employment is generally 2 percent to 3 percent above year-earlier
levels across the district. A few large layoffs were reported,
including 600 packing plant workers and 450 medical employees in
southern Minnesota, but these cuts were partially offset by new
warehouse, poultry processing, food manufacturing and machine tool
jobs. With the exception of the Upper Peninsula of Michigan,
unemployment rates in Ninth District states remain well below the
national average. An advisory council member and a director both
noted that firms in their areas were experiencing some difficulty in
attracting good workers, given low unemployment rates. Other
directors and advisors reported limited wage increases for both
private and public sector workers. They noted little upward price
movement, with the exception of lumber, which remains substantially
above pre-1992 levels. Retail gasoline prices remain 3 to 6 cents
below year-earlier levels.