The district economy continues to sail along
Mid-Year Ninth District Economic Forecast
Published July 1, 2000 | July 2000 issue
A steady wind continues to blow through the sails of the Ninth District economy. The Minneapolis Fed's regional forecasting models predict a growing economy through 2001. Employment will expand over the next 18 months, but at slightly slower rates than in 1999. Wage rates are climbing and some product prices are increasing, notably for oil and gas. Agricultural conditions show continued improvement for livestock, as cattle and hog prices remain at profitable levels. However, crop prices are depressed, placing downward pressure on farm income.
District nonfarm employment growth year-to-date through April increased 2 percent compared with the first four months of 1999. Construction, the highest employment growth industry, expanded 6.9 percent. Employment in services and retail/wholesale trade grew faster than the district average, while employment in government and transportation grew slower. Manufacturing employment decreased 0.1 percent, continuing last year's trend when manufacturing employment dropped 0.3 percent, indicating that workers are shifting from manufacturing to service and retail jobs. The model predicts that district nonfarm employment will finish the year 1.8 percent above year-end 1999. Employment is predicted to grow at the same pace or slightly slower in most district states for 2001 compared with 2000, except for increased growth in South Dakota and Wisconsin (see District forecast).
In order to attract qualified workers, employers are paying higher wages. Wages for district manufacturing jobs increased 3.1 percent for the three-month period ending in April compared to a year earlier, which continues a three-year trend of accelerated wage growth. Since January 1997, monthly district manufacturing wages increased on average over 3 percent compared to a year earlier; whereas, from January 1993 through December 1996, wages increased 2.5 percent.
Increases in oil prices have spurred producers to boost output. In North Dakota, 12 oil rigs were in operation during April, compared with one rig a year ago. Six rigs were in operation in Montana, compared with four a year ago.
Higher energy costs have also contributed to increases in the U.S. Consumer Price Index (CPI). For the first five months of 2000, the CPI increased at a seasonally adjusted annual rate 3.6 percent, as the energy index component increased 16.5 percent. In many areas of the district, reports indicate that while prices for many goods and services remain steady, prices for petroleum, construction materials, health care and housing are increasing faster than the CPI.
District homebuilding began the year in strong shape. Housing units authorized increased 18 percent in district states during the first quarter of 2000 compared with last year, while total existing home sales increased 7 percent. Home prices have climbed in response to increased demand and higher building costs. In Minneapolis-St. Paul, the median sales price for existing homes climbed 9 percent year-to-date through May compared with the first five months of 1999. Rising interest rates will continue to raise the cost of home mortgages; nevertheless, the model forecast predicts increases in housing units authorized in 2000 for most district states.
Low crop prices worry farmers, but livestock producers are in good shape
The mild winter and spring gave farmers a head start on this year's crop, while good livestock conditions provided ranchers with some early-year profits. Spring planting was completed earlier than the five-year average, according to the U.S. Department of Agriculture (USDA). In addition, crop progress is ahead of the five-year average. Meanwhile, low feed prices, good spring calving conditions and healthy livestock prices created a good recipe for improved financial conditions for ranchers.
Looking forward, low crop prices will likely have a negative effect on district farmers again this year. Record U.S. soybean planted acreage and large stocks are expected to keep prices in the $4 to $5 per bushel range, reports the USDA. Meanwhile, increases in projected corn acreage and yields in tandem with small increases in demand could put farmer corn prices at about $1.65 to $2.05 per bushel. However, reduced wheat plantings and slightly higher demand are expected to increase wheat prices 15 cents per bushel to $2.65.
Agricultural producers face issues surrounding genetically modified crops. Based on a March 2000 USDA survey, 25 percent of this year's U.S. corn crop and 52 percent of the soybean crop are varieties enhanced by biotechnology. This increased variety of crops has agricultural producers, transporters and processors scrambling to develop processes to separately handle genetically modified foods.
Unlike the outlook for crops, the outlook for livestock is good because of increased domestic and international demand, keeping prices at a healthy level. Although red meat supplies are at near record levels, the strong economy is spurring demand. Fed-cattle prices are expected to average in the lower $70s per hundred weight in 2001, up from near $70 this year according to the USDA. In addition, hog prices in 2001 are expected to average in the mid-$40s, about the same as in 2000.
Compiled by Rob Grunewald,
Associate Editor-Statistics, and
Tobias Madden, Regional Economist