Onward and (cautiously) upward: Despite some concerns, expansion likely to continue

NInth District 1999 Economic Forecast

Published January 1, 1999  | January 1999 issue

In last year's forecast issue of the fedgazette, there was much discussion about labor shortages, especially in Ninth District metro areas, and about whether such shortages would spur inflation and hamper economic growth. Unemployment rates were plunging and employers were going to great lengths—absent broad wage increases—to retain and attract employees.

Twelve months later, unemployment rates are still low—at a national level even lower than last year—but inflation is also still under control, leaving some forecasters this year to fret about the possible impact of international economic problems. Once again, though, such issues are not enough to dampen the outlook for the new year: Economic growth should continue throughout the Ninth District in 1999, according to the Minneapolis Fed's annual business conditions poll and the bank's economic models. Even agricultural bankers—faced with struggling livestock and grain markets in certain areas—have grown more positive during the recent quarter.

But this is a somewhat tempered outlook: Respondents to the bank's poll are a little less optimistic than the previous year; labor shortages hampered the models' forecast during 1998 and continued shortages may also drag down the models' optimistic outlook for the new year; and agricultural bankers are keeping a wary eye on certain problematic sectors, like hog markets and scab-infested wheat acreage. Beginning with the business conditions poll, this issue of the fedgazette provides forecasts and analyses for the coming year.

Labor recap

Last spring, in response to concerns about reported labor shortages, the Federal Reserve Bank of Minneapolis held a special meeting of Ninth District business owners and local officials to discuss the issue. Follow-up calls to some of the participants confirm the upbeat forecast for the coming year, but the business officials are still concerned about the need for qualified labor. A sampling of their responses:

  • "It's definitely not any better; if anything, it's tighter," says Becky Albright, vice president for Human Resources, Hutchinson Technology, Hutchinson, Minn. Labor needs vary by location and position, Albright says. Information technology jobs have been tight at all locations for five years, she says; in Minnesota, production labor has gone begging over the last three years. And there's no end in sight, she says: "I can't give you a time frame."

  • "A year ago, the labor shortage was not a dominant factor in management. It's a much bigger factor today," says Jim Coyne, vice president and director of Human Resources, Citibank, Sioux Falls, S.D. In late 1997 the company sent notices to 70,000 homes about job openings and 900 responded; a year later a similar mailing drew only 300 responses and, given the tightened market, was still considered a success, Coyne says. He expects the trend to continue in 1999: "If you hear anything different, let me know. I could use a break here."

  • Ronald Zweig, president, United Food and Commercial Workers Local 653, Plymouth, Minn., and a member of the Minneapolis Fed's Board of Directors, didn't see much change in the labor situation, and if there is any softening at all, it's only softening to normal. "And we're so used to tremendous growth, I'm not really sure where that lies," he says. Zweig says there has been some push on entry-level wages to "get people in the door," but he expects that employers will continue to emphasize such quality-of-life perks as flexible schedules, day care options and more vacation. That's what workers want, he says, and they're getting it.

Labor availability issues will continue to vex businesses in the coming year, according to the Minneapolis Fed's business conditions poll: Respondents chose it as their top concern for 1999.