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Beige Book Report: Minneapolis

September 11, 1996

As the summer has progressed, the Ninth District continues to experience favorable economic conditions in most sectors. All types of construction are strong. Crop conditions are good, though delayed development may expose corn and soybeans to frost damage. Farmers are responding to high grain prices and favorable crop expectations by increasing capital spending. Oil, gas, iron and nonferrous mining output continues strong. Manufacturing is generally robust, and inventories are described as normal. Vehicle sales continue moderate to strong, while other retailers report good sales. Tourism is somewhat slow, especially in western areas. Despite some indications of wage pressure, most compensation increases appear modest. Commodity prices have fallen, and intermediate and final goods prices are largely stable.

Construction and real estate
"Phone company unable to keep up with growth" headed a recent newspaper report on Sioux Falls, S.D., where the telephone company has been issuing cellular phones to homeowners in some new developments because it is falling behind laying cable to newly constructed houses. The pace of building is somewhat less fervid elsewhere.

All types of construction are brisk. Single-family permits in Minnesota are running 4 percent above year-earlier and two year- earlier levels. Housing construction is also brisk in west central Wisconsin, eastern North Dakota and some Montana cities. A very low 4.3 percent vacancy rate for industrial property in Minneapolis-St. Paul has boosted light industrial building. And publicly let bids for highway and heavy construction in Minnesota and the Dakotas are 13 percent above 1995 for the year through July, the fourth consecutive year of strong increases.

"July and August have been very good for us," comments an officer of a large Minnesota realty company. Strong sales of existing housing are making headlines in Minneapolis-St. Paul, and reportedly are also strong in the Eau Claire, Wis., area. Commercial rentals in the same area also are described as good.

Natural resource industries
There is little change in the natural resource sector from earlier in the summer. North Dakota oil continues as the boom sector, and iron mine output is the highest in several years. Nonferrous output is reportedly stable.

Lumber and oriented-strand board production is somewhat above summer 1995 levels. Paper prices have stabilized and sales of some types are reportedly good. Overall output, however, remains down from a year ago.

Manufacturing and technology
"It has slowed a little in August, but overall we are having a very good year," commented a representative of one Minnesota electronics manufacturer. "First and second quarters were below plan and below last year," says a North Dakota CEO, "but halfway through third quarter, we are doing very well and I expect fourth quarter to be well above plan also." Manufacturing continues to be a sector that is generally solid, but not spectacular. Medical device and nonconsumer electronics manufacturers remain the strongest. Manufacturers contacted report no delays in raw material deliveries and describe their own inventories as normal

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Agriculture
Crops across the Ninth District continue in good shape, but behind usual levels in development and maturation. Corn and soybeans, in particular, will be vulnerable to early frosts. Wheat harvesting is under way in several areas, but behind normal levels. Cash prices and futures for the 1996 crop have retreated from highs set in late spring, but continue at levels that will ensure the highest net returns so far this decade, barring disastrous frost.

Cattle and hog slaughter prices are slightly higher than in early summer, with cattle slaughter numbers somewhat ahead of year-ago levels. Market sources report that cows as a percentage of total slaughter is about 4 percentage points higher than last year, an indication that herd liquidations are taking place. Hog slaughter numbers, weights and percent sows show little change from summer 1995 levels. Milk prices are at new nominal highs, and some 20 percent above year-earlier levels. Production continues down and industry officials expect it to remain low in response to high feed costs.

Farm spending is reportedly on the increase in many crop areas, particularly for machinery. "It's been an exceptional year," says a Grand Forks, N. D., implement dealer. Overall, dealers in that state are having the strongest sales in five years and their counterparts in Minnesota and eastern South Dakota also report brisk business.

Consumer spending
"July was a little slow, but for the year to date, we are about 3 percent ahead of 1995," comments a South Dakota automobile registrations official. "Business is pretty good," says an auto dealers' association official in North Dakota, where favorable conditions in oil and grain sectors have boosted incomes and confidence.

"Retail sales seem to be a little bit above our projections," reports a South Dakota revenue official. "Traffic in our stores is excellent," according to a Fargo, N.D., mall manager. On balance, retail sales seem moderate to strong, with consumers reportedly very selective and value-oriented in their purchases. Retailers complain that stiff competition stemming from recent growth in retail capacity is cutting into margins. "We have to advertise much more than two years ago to keep same-store sales marginally above what we were selling then," says a spokesperson of one Minnesota-based electronics and appliance retailer.

Tourism
"Though it started out slow, the rest of the summer has been real good," remarked one western Wisconsin tourism representative. "Still a little slow," is the report from a counterpart in South Dakota. Business is slowest in Montana, where sources report drops of 5 percent to 20 percent at major attractions. On balance, 1996 seems to be a weak, but not disastrous year for the tourism industry.

Employment, wages and prices
There has been little change in labor markets from earlier in the summer. Unemployment rates remain well below national levels in most areas. Posted offers of entry-level jobs in food service and retail sales are widespread. Skilled electronics technicians, CAD/CAM machinists, printers and other skilled workers are also highly sought after. Several sources report upward pressure on entry-level wages. Hourly earnings in manufacturing in Minneapolis-St. Paul are about 3.3 percent above year-earlier rates compared to a 1.9 percent increase from 1994 to 1995. But other employers report only modest increases in pay and benefits. Many commodity prices are lower than earlier in the year. Few prices increases are reported for either intermediate or final goods, except milk.