May 10, 1995
The Ninth District economy continues to grow at a healthy pace in spite of consumer reluctance to purchase new homes and vehicles. Manufacturing is strong. Mines and paper mills are running at capacity. Commercial construction is also robust. General merchandise sales are good, with some sources noting an increase from the January-February period. Tourist business is solid, but not spectacular. Labor markets remain tight, and many employers find it difficult to hire new workers. Prices for industrial inputs continue to show upward pressure but those for construction inputs have eased.
But interest-rate sensitive sectors clearly have slowed. Automobile sales are substantially below year-earlier levels. Home construction has slowed in virtually all areas of the district compared to 1994's heated pace. Weather rather than interest rates is the problem for agriculture, where cold, wet weather has delayed planting and harmed beef producers.
Manufacturing
"Business is excellent, but margins are tight," sums up one
Minnesota manufacturer. Managers, news media, industrial electricity
use, employment and earnings reports all point to continuing
strength in the manufacturing sector. Some firms squeezed by rising
input costs complain that passing along such increases in their
product prices is difficult due to competition.
Natural Resource Industries
Mining is geared up for a big year. Minnesota's mining employment is
up 10 percent from 1994. In South Dakota and Montana gold and copper
mines are running at capacity. Oil production is stable, but there
are some indications of increased exploration activity.
Paper producers enjoy favorable prices and mills are running at capacity. Prices for recycled paper and cardboard have risen substantially as producers compete for raw materials.
Construction and Real Estate
Construction remains strong, but has slackened from the heated pace
that characterized much of 1994. Commercial construction continues
to outpace residential work. Large, publicly let projects in
Minnesota and the Dakotas are up about 1 percent for the first
quarter of 1995 compared to 1994. Commercial work such as
warehouses, suburban office buildings and stores remains robust, but
reportedly with less of a backlog than was common in the last half
of 1994.
Residential building is clearly down from year-earlier levels in most areas. New starts are typically down 5 percent to 20 percent in metropolitan areas. The extreme was Sioux Falls, S.D., where new permits for March declined 60 percent compared to a year earlier. But even that decline was reported under the heading, "Builders positive despite drop." In most areas declines are from a very fast pace set in 1994 and builders generally expect a satisfactory season in 1995. Minnesota's construction employment for March was up 1.6 percent over a year earlier. Reflecting strong commercial work, Minneapolis-St. Paul construction worker numbers increased 6.5 percent in the same period.
Agriculture
Cold, wet weather has cast a pall over the outlook for agriculture.
Cow-calf operators experienced problems with rain and mud during
calving, and calf mortality is reportedly higher than usual,
particularly in South Dakota. More importantly, tillage operations
and spring planting of wheat and other small grains have been
seriously delayed by the unseasonable weather. In general, crop
operations are one week to two weeks behind schedule. The delay is
reaching a level where at least some potential yield is being
sacrificed even if conditions are optimal later in the season.
A cautious mood was apparent among farmers even prior to April's unseasonable weather. Bankers responding to the Minneapolis Fed's first quarter 1995 survey of agricultural credit conditions describe their farm borrowers as cautious, particularly in regard to capital spending, citing low product prices and uncertainty about the future of federal agricultural legislation. Rates of loan repayment are described as somewhat below normal and requests for extensions somewhat higher, although most farm borrowers are reportedly able to service their debts. Farm interest rates continue to edge up, with most categories in the 10 percent to 10.5 percent range.
Consumer Spending and Tourism
"Our retail sales continue to be very strong," reports the CEO of a
firm with department stores across the Ninth District. Across the
region, sales of general merchandise appear to be improved since the
preceding report. Some mall managers describe a recent pick-up in
traffic after a slump earlier in the year and national chains based
in Minneapolis report improved sales.
Vehicles are another story. New vehicle registrations for the year through March were down about 8 percent for the state of South Dakota compared to the same period in 1994. For Minnesota and North Dakota the declines were 6 percent and 10 percent respectively. Dealers and association representatives agree that the strong sales climate which had prevailed through most of 1994 is definitely over.
Sparse snow cover hampered winter tourism in Montana and many other areas, although Michigan's Upper Peninsula had good cover through March and strong business. Tourism inquiries for the summer are active and up from last year, except in Montana. In South Dakota, visits to museums and major outdoor attractions are up sharply over last year and tourism officials expect a very busy summer season. New motels are being built in a number of South Dakota locations in anticipation of growing tourist business.
Employment, Wages and Prices
"Jobs aplenty" was the headline used by one newspaper to describe
the labor market in southwest Minnesota. It would be accurate in
most other parts of the Ninth District. In South Dakota, labor
shortages continue to be described as a stumbling block to
manufacturing growth. One firm announced a new plant in northern
Iowa because of the difficulty of securing additional workers near
its existing plant in South Dakota. One Minneapolis-St. Paul multi-
screen theater chain has cut the number of showings of less-popular
movies because of difficulty in hiring enough staff to keep the
normal schedule. Managers who expected that their firms' employment
would increase in the next 12 months outnumbered those expecting a
decrease by two to one in a Minneapolis Fed poll of business people
in northwestern Minnesota and eastern North Dakota.
Prices continue to increase for industrial inputs, particularly paper, packaging and basic chemicals. But lumber and other construction materials' prices have moderated somewhat. One Montana mill reportedly cut 2x4 lumber prices sharply to move excess inventory. Petroleum product prices rose in March and April, and are now about 4 percent above a year ago. At the consumer level, some fresh vegetable prices are markedly higher but meat is steady to lower. Few other price changes are reported.