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 advisers' 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. Advisers are selected to represent geographic, economic and gender/racial sectors in the Ninth District.
Residential construction remains strong, farmers had a bountiful harvest, and business investment, consumer spending and industrial activity continue to grow, according to members of the Minneapolis Fed's Advisory Council on Small Business, Agriculture and Labor at its Nov. 9 meeting.
However, for the first time in about a year, members also discussed such concerns as labor shortages, wage pressures, declining farm prices and the impact of rising interest rates on home construction. (The advisory council met prior to the Federal Open Market Committee's November increases in the discount and fed funds rates.)
None of the advisers expressed alarm about the above concerns; nevertheless, there is an "undercurrent of uncertainty" in the economy, according to one adviser.
"You have to pay to get good people"
With unemployment rates just over 2 percent, minimum wage jobs are "virtually non-existent" in Grand Forks, according to Hal Gershman, president of Happy Harry's Bottle Shop. Skilled workers are hard to find, putting pressure on wages, he says. "You cannot find anyone to do anything right now," Gershman says of the entire Red River Valley region.
"Anyone who wants to work has a job," says Jeanne Davison of the southeastern Minnesota and southwestern Wisconsin area. Qualified workers are hard to find, and wages are running above the minimum, says the owner of Butterfield Farms in Hokah, Minn. Howard Hedstrom, partner in Hedstrom Lumber Co. of Grand Marais, Minn., says the tourism industry is offering plenty of work, but there is little pressure on wages.
In Wisconsin, manufacturing workers are hard to find, says Ron Isaacson, president of Mid-Wisconsin Bank in Medford. "You have to pay to get good people," he says. But in Eau Claire, Duane Dingmann, president of Trubilt Auto Co., says that strong demand for workers has not put pressure on wages.
Virginia Tranel, co-owner of Tranel Ranch in Billings, Mont., says that concerns have been raised about the number of jobs that are shifting from higher-paying natural resource industries to lower-paying services.
Wages are stable in western Montana and jobs have been plentiful, according to Mike Collins, president of Winter Sports Inc., Whitefish. But he expects unemployment rates to rise in coming months due to seasonal slowdowns and an expected cooling of the economy.
"New projects are not being started"
Collins says the migration to Montana from western states has slowed and the demand for new housing has leveled, which are the two main reasons he expects Montana's recent growth to slow. "Housing projects in the pipeline are being finished, but new projects are not being started," Collins says.
In general, the other advisers report a similar story regarding construction: Strong growth during the past year has begun to moderate, or local developers say that a slowdown may begin soon. In the Red River Valley of North Dakota, housing remains a strong industry, especially in Fargo, according to Gershman. But he notes that rising interest rates are becoming a topic of concern.
Builders are not getting as many inquiries for residential construction in western Wisconsin, says Isaacson. Davison says residential building has also slowed in LaCrosse, following a good year, but there is still strong demand for rental property.
Dingmann says the housing market is soft in Eau Claire, and residential construction is off around the state, except on lake property.
Most advisers say that retailers expect a good holiday shopping season, and all report that investment opportunities range from good to great.
Great yields, poor prices, plus anxiety about farm bill
Low rainfall in northwestern Montana has depressed yields, but all other areas report good harvests, especially for wheat, corn and sugar beets. Corn and wheat prices, however, are low. The cattle industry is also suffering from low prices and there is some anxiety about the 1995 farm bill.
Davison, from southeastern Minnesota, reports a silver lining among the cloudy news: Although the outlook is "grim" for hog farmers because of low prices, expanding exports may help; while beef prices have dropped, inventories may increase because of abundant feed; and even though grain prices have fallen, grain farmers should see increased profits over last year because of abundant yields and ideal harvest conditions.
"The 1995 farm bill will, of course, play a great part in determining the farm climate," Davison says.
Davison also reports modest investment in farm machinery, but many farmers are fixing old machines rather than purchase new implements. Isaacson also says that there is little new investment on farms, and adds that the dairy industry is "holding steady," despite the continued loss of small dairy farmers and increasing competition from western states.
The impact of falling beef prices is just beginning to be felt, according to Montana's Tranel. Steers that sold for $l.06 per hundredweight two years ago are now selling below 80 cents. "The price dropped lower and quicker than expected and is seen as a trend for two to three years," she says.
The world supply of wheat is at its lowest in about 20 years, Tranel reports, and that bodes well for wheat farmers.
There is little investment and expansion in the ag industry right now, Tranel says. "People are skeptical, cautious, less optimistic, but not to the point of doom and gloom. In general, farmers are in better condition than five or six years ago."
In the natural resources industries, Collins reports that aluminum sales are up, while Hedstrom says that the lumber industry has had a volatile year. Lumber prices reached new levels early in the year as housing demand increased, but by midyear housing starts began stalling and the higher lumber prices attracted more foreign lumber, thus driving prices back down.
"Many western mills, loaded with high-priced logs, had lumber pricing drop below what they could convert for, and went off the market for periods, Hedstrom says. "Pricing has stabilized or crept back up from midyear lows."
For the future, Hedstrom expects strong demand for lumber products, but price competition from Canada, supply uncertainty and public attitudes about resource use are cause for concern within the lumber industry.
