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Beige Book Report: Minneapolis

May 4, 1994

The economy of the Ninth Federal Reserve District shows strong growth in early spring. Automobile sales are booming and general merchandise sales have reportedly increased. Construction remains strong in comparison to past years and markets for existing residences are tight. Manufacturing sales reportedly continue to strengthen. Mining output shows little change, but petroleum production in the district continues to erode slightly. With favorable weather, the crop season is off to a strong start. Livestock numbers remain high and continue to trend slightly upward. Employment levels are generally 3 percent above year-earlier levels, and unemployment rates remain below the national average and year- earlier levels. There is little evidence of significant upward movement in wages, but employers in sonic regions report difficulty in finding qualified new hires. A few manufacturers report difficulty in securing some inputs.

Consumer spending and tourism
"One of the best first quarters ever,' said a state auto dealers association spokesperson in describing vehicle sales. His assessment was echoed by counterparts in other states and verified by Minnesota first-quarter new registrations, which were up 6 percent over year- earlier figures for automobiles and over 50 percent for pickups. In South Dakota car and pickup sales were up nearly 19 percent. General merchandise sales also appear stronger. "First-quarter sales were well above last year's," reported a marketing manager for one South Dakota mall. Regional department store chains also reported improved sales.

Tourism is stable. Winter business in Wisconsin, Minnesota and Michigan's Upper Peninsula was slower than normal due to cold weather, according to industry officials and a director. But South Dakota enjoyed a strong ski and snowmobile season. Industry officials are generally optimistic about the summer season; Montana, in particular, is gearing up for a very strong season after a recent spate of laudatory news articles about that state's tourism opportunities.

Construction and real estate
Construction of all types is very strong across the Ninth District, and markets for existing housing are tight in many metropolitan areas. March new housing permits in the Minneapolis-St. Paul area were 10 percent above 1993 levels. Commenting on the effects of recent mortgage rate increases, one building association spokesperson states, "We're concerned, but so far all is done is get the fence sitters off the fence." Industry sources note very active home building in Sioux Falls, S.D., and described the market for existing housing as the tightest in years. Residential construction is reportedly also robust in Billings, Mont. and Eau Claire, Wis. Directors from North Dakota and Wisconsin describe very strong commercial building in their areas in addition to active home building. Newspapers from Montana, North Dakota and South Dakota echo these reports. In Minnesota and the Dakotas, commercial and heavy construction contracts through the first quarter were down slightly from 1993 levels but still 24 percent above 1992.

Manufacturing and natural resource industries
District directors note growing sales by small and medium-size manufacturing firms. Institutional furniture, farm machinery and building components face particularly good sales environments. A metal components firm describes good sales growth for automotive, appliance and housing-related items but little growth in other areas. First-quarter reports for publicly traded manufacturing firms show strong growth in revenues and earnings. Industrial use of electricity continues to grow above trend in Minnesota and South Dakota.

The Ninth District petroleum sector is reportedly suffering the effects of low crude prices. A director reports that some existing wells are being shut in, and published rig counts are the lowest in 10 years. Crude production is down about 5 percent from a year ago, although refinery throughput is up 12 percent as upgrades at three major refineries have come on stream. Non-ferrous metal mining output shows little change. Ice packed in Lake Superior near the Soo locks continued to impede ore shipping in mid-April but was expected to clear rapidly with warmer weather.

Agriculture
After 1993's difficulties, the 1994 crop season is opening with near ideal conditions. Moisture levels are adequate in virtually all areas, relatively few areas complain of surplus moisture, and little of the flooding that was anticipated earlier actually materialized. Crop planting on April 15 slightly lagged long-term averages but was generally ahead of year-earlier levels. State agricultural statisticians also noted that weather was ideal in the week of April 18-23 and anticipated that planting of most crops would be well ahead of historical levels by the end of the month. Planted acreages of most major crops are expected to be steady or up from 1993 levels.

Output of slaughter livestock is strong; numbers of livestock on farms and slaughter levels show moderate growth from year-earlier levels. With higher grain prices, feeding livestock is less profitable than a year ago, but industry observers expect numbers to continue to grow modestly throughout 1994. However, dairy production is down somewhat from comparable periods in 1993 in spite of generally higher milk prices. The decline is most pronounced in Wisconsin, but Minnesota and South Dakota also show some slippage.

Employment, prices and wares
Employment shows increasing growth. March non-farm employment numbers across the district are about 3 percent above year-earlier levels. A director noted that some firms in North Dakota experience increasing difficulty in attracting qualified workers. Similar problems are reported in areas of South Dakota, Minnesota and Wisconsin. Unemployment rates are down from March 1993 levels in all states but North Dakota. Excepting Michigan's Upper Peninsula, unemployment levels throughout the Ninth District remain well below the national average.

Directors and industry sources report wage increases in the 1 percent to 3 percent range for both private and public sector workers. Price increases have been reported for some industrial inputs, including wood particle board and metal finishing chemicals. Several firms reportedly have difficulty in securing desired quantities of particle board, and there is one report of shortages in certain types of steel. Lumber prices remain higher than a year ago, while petroleum fuels continue 3 to 10 cents per gallon below early 1993 levels.