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Beige Book Report: Minneapolis

September 14, 1994

The Ninth District economy remains robust. Construction and manufacturing are strong. Metal mining shipments are growing and oil and gas drilling is above 1993 levels. Output of forest products for construction remains high, and beleaguered paper mills are benefiting from price increases for some products. Crop and livestock production is above year-earlier levels. Vehicle sales continue to be very good, but general merchandise retailers may have reached a plateau. The summer tourist season has been excellent.

Employment levels continue higher than year-earlier levels in all parts of the district and unemployment rates are lower. Some firms report difficulty in finding skilled employees, particularly in metropolitan areas. But there is little upward pressure on wages or prices except for petroleum products and newsprint.

Construction and Manufacturing
As has been true for more than a year, construction is one of the strongest sectors of the Ninth District economy. Residential building in the Minneapolis - St. Paul area in July was over 4 percent above 1993 figures. "Buyers are still coming out and, although they may be more cautious, they are nevertheless buying," reported a builders spokesperson. Similar conditions prevailed in most metropolitan areas across the district. "We are on a record year," said a Sioux Falls. S.D., association representative, "the higher interest rates really haven't hurt activity." Furthermore, commercial and heavy construction continues to expand. Publicly let contracts in Minnesota and the Dakotas through July are 2 percent higher for 1994 than 1993, but 23 percent above 1992 levels.

Manufacturing continues to grow. News media and district directors report good manufacturing sales, particularly by machining and metal fabricating businesses and by producers of construction-related products. Producers of farm implements and industrial machinery also reportedly have good business.

Natural Resource Industries
Sales prospects are generally good for the Ninth District's natural resource-related industries. Ongoing strength in construction continues to undergird the forest products industry. Producers of plywood substitutes, windows and millwork are particularly busy. Reported increases in market prices for newsprint offer some relief for the beleaguered paper industry.

Prospects are good in the metal mining sector. One Minnesota iron mine, idled for a year after a labor dispute, is back in full production and other mines report strong shipments. A Minnesota industry spokesperson said, "We expect a 43 million ton year in 1995," roughly 6 percent above 1994 shipments. Oil production continues to erode in North Dakota and Montana, but drilling activity through mid-summer is generally above 1993, reportedly in response to higher oil prices. A Montana official noted that a new law lowering taxes for horizontally-drilled oil wells had caused a spurt of drilling.

Agriculture
Agricultural production in the Ninth District is above 1993 levels in most categories. Excellent harvests of major crops are expected, not only in comparison to 1993, but also relative to five-year averages. Wheat production in Montana is apparently down somewhat from 1993's record, but very good relative to the 1988-1993 average. Wheat output is also expected to be down slightly in South Dakota but up strongly in North Dakota and Minnesota. North Dakota and Minnesota anticipate a doubling of dry bean production compared to 1993 and a 10 percent increase in sugarbeets. In all states corn and soybeans are generally in very good condition. Minnesota corn and soybean crops will break previous records by 5 percent to 10 percent.

The numbers of livestock on farms and slaughtered remain high compared to year-earlier levels and longer term average levels. Cattle prices have recovered slightly from lows set in July, but hog prices have been essentially steady since June. Given the production cycles for cattle and hogs, output can be expected to remain high through the remainder of 1994. Minnesota and Wisconsin milk production in July was slightly below 1993 levels.

But any impetus to farmers' personal or business spending as a result of increased production may be limited by widespread declines in farm prices. A midsummer survey of agricultural credit conditions showed that more Ninth District bankers expected decreases rather than increases in farm capital spending in the third quarter. In spite of these expectations, farm machinery sales have been good thus far in 1993, a North Dakota implement dealers representative said. "The biggest limitation on sales is the inability of dealers to get as much as they want."

Consumer spending and tourism
Retail sales remain generally strong for the district as a whole, but with some indications of softening of general merchandise sales. Vehicles continue to sell well in all areas. One representative of a state auto dealers association said, "We don't see any slowdown, it is a very good year." Mall managers in both Dakotas say that customer traffic and sales remain very strong. And a news report from Grand Forks, N.D., described retail sales there as very good in spite of a decrease in Canadian shoppers. But a Minneapolis-based retail chain reported August sales only slightly above 1993 and described retail conditions as slowing. And a representative of a regional retail chain said, "Sales are not as good as earlier in the year."

Pleasant weather and successful marketing enabled Ninth District tourism businesses to enjoy a busy summer. An official in the Upper Peninsula of Michigan reports motel/hotel traffic in August up 5 to 6 percent over last year. Northern Wisconsin resort owners and campground operators laud this summer as the best in five years, according to a local newspaper. Businesses near Duluth, Minn., report double digit increases over last year's rainy summer. Visits at South Dakota campgrounds are up about 5 percent for July and August compared to 1993, and several South Dakota tourist attractions reportedly will set attendance records this year. Major attractions in Montana claim single digit increases to slight declines, staying close to last summer's record pace.

Employment, Wages and Prices
Labor markets reflect a strengthening district economy. Summer employment numbers continued to climb in all district states and generally remain nearly 3 percent above comparable 1993 figures. Unemployment rates remain well below year-earlier levels. In Mankato, Minn., where the unemployment rate is 2 percent, a Job Service director said, "It's definitely an applicant's market." And in other urban areas such as Sioux Falls and Rapid City, S.D., Grand Forks and Fargo, ND., and Eau Claire, Wis., job growth reportedly is strong and some firms are experiencing difficulty hiring skilled workers.

However, directors and industry sources report little wage or price pressure. Hourly manufacturing earnings in Minneapolis-St. Paul are up barely 1 percent from a year ago. Petroleum prices have increased, with most motor fuels 5 to 8 cents above year-earlier levels in August. Newsprint prices reportedly have also risen.