Three times annually, the Minneapolis Fed's Advisory Council on Small Business, Agriculture and Labor meets with President Gary Stern and bank staff to report on the state of the Ninth District's economy. The following article summarizes the advisors' November comments.
The Minneapolis Fed's Advisory Council, similar to others formed in 1985 at each of the 12 Federal Reserve district banks, consists of 12 members serving three-year terms. Advisors are selected to represent geographic, economic and gender/racial sectors in the Ninth District.
Last year, when the Advisory Council acknowledged the end of the recession and the beginning of a slow-growth period, the group looked to housing construction and tourism to lead the way. While both of those industries showed strength in certain regions throughout the district and are expected to remain strong in some, the council now looks to a revived retail industry to also prod the economy's patient recovery.
This hoped-for increase in retail activity should be spurred, in part, by improved conditions in the district's rural areas. Some of the advisors report that the agricultural industry is having its best year since the drought of the late '80s.
Retail, medical expansions help fuel economies
Duane Dingmann, president of Trubilt Auto Body Inc., Eau Claire, Wisconsin, offers a general economic forecast that best reflected the overall mood of the Advisory Council when he says the economy is "growing slowly, but not spectacularly."
One of the most optimistic appraisals was offered by Susanne Boxer, president and CEO of Houghton National Bank in Houghton, Mich. Citing the entrance of major retail chains into the Upper Peninsula (U.P.) and the growth of the health care industry, she says the U.P.'s economy appears to be healthy. Also, the spring '93 opening of a prison in Baraga will bring jobs and likely new home construction. "We're seeing some real [positive] changes coming in the U.P.," she says.
Retail sales are up slightly in northwestern Wisconsin, according to Tad Bretting, president and CEO of C.G. Bretting Manufacturing Co. of Ashland, Wisconsin. A cool summer hurt the tourism industry, however, and Bretting says resort owners are hopeful that some early snowfall will bolster the winter season.
The home construction market in Eau Claire received a shot in the arm when Rochester's Mayo Clinic merged with the local hospital, Luther Hospital, according to Dingmann. The new hospital expects to add 100 new employees within two years, adding to the 40 new jobs already created in 1992 when Luther prepared for an expansion of its cardiac-care facilities. The addition of medical personnel is already revitalizing the city's real estate market, Dingmann says.
In western and northern Montana, growth in retail sales is expected to reach 4 percent to 8 percent, according to Michael Collins, president and CEO of Winter Sports Inc., Whitefish, Montana. Collins also reports that a recent drop in auto sales has bottomed out and dealers are seeing improvement. Also, new and existing home sales are up, with some contractors so backlogged that they "are in the enviable position to delay building for up to a year."
Western South Dakota should see an increase in retail spending of 8 percent to 10 percent over the next two years, according to Stanford Adelstein, president of Northwest Engineering Co., Rapid City, South Dakota. Declines in personnel at nearby Ellsworth Air Force Base are expected to be minimal because the base will likely retain its missions and may add more as other bases face reductions, Adelstein says. Also, visitors to Black Hills gambling ventures continue to exceed expectation.
Regional centers grow at expense of smaller towns
Many advisors sound a similar theme about the likelihood of an upswing in the economy: Cities and towns that serve as regional service and shopping centers will likely benefit the most. Large merchandise and grocery chains are continuing to open throughout the district, drawing more shoppers from outlying rural areas.
Marjorie King, secretary-treasurer of Joe C. King & Sons Inc, ranchers in Winnett, Montana, says that merchants in smaller eastern Montana communities are feeling the pinch as shoppers travel farther to larger towns.
Bob Duxbury, a farmer from Wessington, South Dakota, says that most of eastern South Dakota's retail growth has been confined to Sioux Falls, a city that collects about one-third of the state's entire sales tax revenues. The council's two North Dakota advisors tell a similar tale about Grand Forks and Fargo, two cities currently enjoying a boom in commercial construction, as well as retail sales growth.
Douglas Burgum, president of Great Plains Software, Fargo, North Dakota, says Fargo has benefited greatly from the state's rural-to-urban population shift of the 1980s. West Fargo is the fastest-growing community in the state, and the entire metro area is benefiting from medical expansion, home construction and public works projects like highway renovation.
Harold Gershman, president of Happy Harry's Bottle Shop in Grand Forks, North Dakota, reports that all major North Dakota cities are attracting more rural shoppers, but adds that merchants in smaller towns may fare better this year because of an improved agricultural economy.
One area of concern for the state's larger cities, however, is the fall-off in visits from Canadian shoppers this year, according to Gershman, a view shared by Montana's Collins. Although a repeat of last year's strong growth was not expected, Gershman hopes that the exchange rate (currently below 80 cents U.S. for a Canadian dollar) will improve and help increase cross-border traffic. Canadian visits have either declined or increased only slightly in recent months compared to last year.
Labor markets vary from good to stagnant
While she reports that wages and employment growth are essentially flat, Kay Fredericks, president and CEO of Trend Enterprises Inc., New Brighton, Minnesota, offers a more optimistic short-term forecast. She says that Twin Cities companies are planning increased investment and spending in the coming year. Businesses are "reaching out farther," she says. "Regional companies are looking at international opportunities, local companies are looking to new markets in the U.S.—to retain sales, not necessarily to increase sales."
In addition to the jobs created by the impending opening of a new prison in the U.P. and a surge in home building, Boxer reports that previous salary cuts at Michigan Technological University in Houghton have been restored.
In western South Dakota, steady retail growth, gambling's increasing popularity, a strong tourism industry and the proposed construction of a $25 million destination resort point to strength in labor markets, according to Adelstein.
North Dakota's advisors say that while unemployment is low and is expected to remain low in the near future, an increasing problem for the state is a lack of good jobs. When there are good positions available, companies are often swamped with applicants. Gershman reports that a Bismarck telemarketing firm recently advertised 80 jobs at $7 an hour—there were 600 applicants. Another consequence of the low unemployment rate is that lower-paying jobs, those near minimum wage, are harder to fill and wages have increased to spur interest.
Regarding employment growth and wage levels, Duxbury says eastern South Dakota will be lucky to match last year's subdued growth, with health care costs likely taking a big bite out of next year's wage increases.
The outlook for eastern Montana's employment and wage levels is similar to eastern South Dakota's, according to King: "We'll be lucky if it will hold steady." The best chance for growth is in southern Montana, King says.
A growing health care industry and an "exceptional" hardwood lumber industry will fuel job growth in northwestern Wisconsin, according to Bretting. Western Wisconsin also benefits from a new Wal-Mart distribution center, but loses about 400 jobs at Cray Research's Rice Lake and Chippewa Falls plants.
No drought, improved yields and good dairy prices fuel ag optimism
Improved dairy prices and a break from the drought fueled a largely positive agricultural report from the advisors, especially from Burgum: "I can make the most optimistic report in my three years on the council." A good sugar beet crop in the Red River Valley of North Dakota, solid yields in small grains, increased agricultural lending and improved machinery sales are the basis for Burgum's report.
Burgum's North Dakota colleague, Gershman, agrees with Burgum's optimism, adding that many farmers who have been renting land are now borrowing funds to purchase their own farms. And, while farmers—especially in the west—are doing better after years of poor moisture conditions, he says they "need a few good years in a row" to fully recover.
With improved dairy prices, investment in land and equipment has increased in northwestern Wisconsin, Bretting says. If interest rates stay low and milk prices remain high, "we will have continued good times." In addition to dairy farming, Bretting says some farmers are having success growing organic apples. Organic farmers are receiving two to three times the price of regular treated apples, he says.
While farm machinery sales are up in North Dakota, most other advisors reported declines or steady levels on new machinery, with increased interest in used equipment. Corn crops yielded well in South Dakota, according to Duxbury, but quality was poor due to excess moisture and lack of sun. And in eastern Montana, King reports that while grain farmers did better than expected because of adequate moisture, most are using their profits to pay off debt and not to reinvest. Cattle prices are better but some Montana ranchers expect higher fees soon for use of public grazing land.
