‹ Back to Archive Search

Beige Book Report: Minneapolis

June 22, 1994

Strong growth is evident in the Ninth Federal Reserve District. Automobile sales are booming, general merchandise sales continue to increase, and summer tourism appears off to a strong start. Both commercial and residential construction remain strong. Manufacturing output apparently continues to grow. Iron ore shipments are up, and prospects for other metal mining have improved. Crops are in excellent condition across most of the district, while livestock numbers remain high. Employment levels continue about 2 percent to 3 percent above year-earlier levels, while unemployment rates have dropped from one-half to one full percentage point in the same period. Despite this strong growth, there is little evidence of significant upward movement in wages or prices. Employers in certain areas continue to report problems in securing qualified new employees, some manufacturers report difficulty in obtaining steel, and price increases are reported for industrial metals.

Consumer spending and tourism
A North Dakota auto dealer's comment, "My inventory has never been so low," characterizes the strong pace of vehicle sales across the district. Dealers' association spokespersons echo this sentiment and note that some popular models are in very short supply.

General merchandise sales continue to strengthen. "Traffic has been very good," reports a North Dakota mall manager. Another mall manager in North Dakota commented that sales of appliances and electronics seemed particularly strong but that virtually all stores in his facility had good business. Regional department store chains also report very good sales, and a Minneapolis Fed poll of district business leaders disclosed that nearly half expected consumer spending to be up in coming months. Only 4 percent expected it to drop.

The 1994 tourist season is apparently off to a strong start. Visits at several South Dakota sites since January 1 were up as much as 19 percent over year-earlier levels and tourism officials in that state predict an excellent season. Their counterparts in Minnesota and Montana express similar optimism.

Construction
Residential and commercial construction continues strong in all states of the Ninth District. New housing permits in Minnesota for April were 13 percent above 1993 levels, which already reflected a fast-pace. Virtually all of the increase over 1993 was in multifamily construction. In the rest of the district, residential construction reportedly is active in most regional centers, including Sioux Falls and Rapid City, S.D.; Billings, Bozeman and Missoula, Mont.; Grand Forks and Fargo, N.D.; and La Crosse and Eau Claire, Wis.

The strong pace of commercial and heavy construction set last year continues in the 1994 season. In Minnesota and the Dakotas, contracts through April were down about 1 percent from 1993's very active levels but still 22 percent above 1992.

Strength in this sector is indicated in April construction employment, which is up nearly 6 percent in Minnesota, 7 percent in South Dakota, 16 percent in North Dakota and 18 percent in Montana compared to year-earlier figures.

Manufacturing and natural resource industries
District directors note growing business for manufacturers. One reported that a small plastic components producer was running three shifts seven days a week. Electricity sales to industry by one large Minnesota and South Dakota utility is growing at twice the five-year trend rate. Some of the increase is attributable to a major expansion at a petroleum refinery, but sales to machinery manufacturers increased at nearly three times the overall trend.

There are some positive notes in natural resource industries. Copper prices have increased over 25 percent in recent weeks, allaying fears of possible mine closings. Strong demand from the steel industry has buttressed iron ore shipments from Lake Superior ports. And substantial new drilling for gas is under way in Montana. However, petroleum production continues to drop in North Dakota and Montana.

Agriculture
In spite of localized problems with hail and topsoil dryness, 1994 crops are reported good or excellent in virtually all farming areas. Moisture levels are adequate in most areas, and very little land in the Ninth District suffers any of the lasting damage from the 1993 floods that is reported in downstream states. Development of all major crops was generally equal to or ahead of five-year avenges in all district states. Yields on the first cutting of hay in Minnesota and Wisconsin are reportedly down slightly from 1993 but quality is excellent.

In the livestock sector both cattle and hog numbers remain high in comparison to historic levels. Hog slaughter levels are largely unchanged in spite of sharp price declines in recent weeks. Cattle slaughter is down slightly from year-earlier figures, but industry observers continue to expect hog and cattle numbers to grow modestly through the rest of the year.

Employment, wages and prices
Strength in the Ninth District economy is demonstrated in tightening labor markets. Employment shows increasing growth. April non-farm employment numbers across the district are 2 percent to 3 percent above year-earlier levels. Unemployment rates have dropped from April 1993 levels in all areas of the district. Drops range from 0.6 percent in the Dakotas to 1.1 percent in Minnesota. Excepting Montana and Michigan's Upper Peninsula, unemployment levels throughout the Ninth District are about two points below the national average. Directors and other sources report that many firms have difficulty in attracting qualified new hires, but wage increases remain modest. One Minnesota computer manufacturer did announce a 200-worker reduction, largely through early retirements, and the reassignment of an additional 300 workers in a cost reduction move.

Despite indications of strong economic growth there is little evidence of generally increasing prices. However, raw materials are one area with some evidence of price pressures. Prices of steel, copper and aluminum have increased and several firms report delays in securing steel, particularly in specialty grades. Wood particle board for manufacturing remains difficult to procure. Lumber prices remain higher than a year ago. Petroleum fuels, however, continue 3 to 10 cents per gallon below early 1993 levels.