Authors
A recent poll of district business leaders and the Minneapolis Fed's regional forecasting models tell slightly different stories for the district economic outlook. While the poll results suggest slower growth in 2001 compared with last year, the forecasting models predict slightly stronger growth. Putting them side by side, we see a slower, but still growing economy during 2001.
Despite tight labor markets, the forecast predicts an increase in employment growth. Unemployment is expected to dip slightly, as wages and prices increase moderately. Growth in residential construction and agriculture will be slower, while commercial construction and manufacturing exports show signs of strength.
Tight labor markets with low unemployment rates have helped keep employment growth down for the past few years. District nonfarm employment growth for fourth quarter 2000 is estimated at 1.7 percent compared with 2.1 percent in fourth quarter 1999. Construction, which expanded 3.4 percent, leads estimates for employment growth by industry. Employment in services, retail and wholesale trade, and government grew faster than the district average, while employment in finance, insurance and real estate, and transportation grew slower. Manufacturing employment decreased 0.2 percent.
Poll respondents expect slower employment growth in 2001 than they did for 2000; however, the forecast suggests there may be room for employment to grow at a faster rate (see poll summary). The district unemployment rate in fourth quarter 2000 increased to 3.3 percent from 3.1 percent in fourth quarter 1999. The model predicts that district nonfarm employment will grow 2.4 percent and unemployment will decrease to 3.2 percent by fourth quarter 2001 (see district forecast).
Wages continue to increase in response to tight labor force conditions; however, the growth in wage increases has slowed somewhat. For example, district wages for manufacturing jobs increased 2.9 percent for the three-month period ending in October compared with a year earlier, the slowest rate of increase in 17 months.
Increases in oil and natural gas prices have helped drive up energy costs. Nationally, the consumer price index (CPI) increased 3.4 percent for the first 10 months of 2000 compared with a year ago. The energy price component of the CPI rose 17 percent during that time. Surcharges on travel and freight and higher costs for winter heating have been reported in the district. Meanwhile, lumber prices have dropped significantly since the beginning of the year.
District housing units authorized through October were down slightly compared with the same period in 1999. The business outlook poll paints a cautious homebuilding picture for 2001, with almost 50 percent of respondents expecting housing starts to drop. In contrast, the Minneapolis Fed's forecasting models predict district housing units authorized to increase 4 percent in 2001, slightly above historical averages.
While residential construction is slower than a year ago, commercial construction has stayed strong. Building contracts awarded in Minnesota, North Dakota and South Dakota were up 9 percent for the first 10 months of 2000 compared with a year earlier. Commercial construction has outpaced residential construction in these states by 5 percent.
While the U.S. economy is growing slower than a year ago, manufactured exports have increased as economies abroad have improved. In the district, manufactured exports were down 6 percent in 1998 while the economies of trading partners languished. However, during the first three quarters of 2000, district manufactured exports were up about 9 percent over a year earlier.
Record payments to farmers in 2000
Most farmers struggled to make a profit in 2000. Input costs increased, most commodity prices remained low, and natural disasters hit hard. In response, the U.S. government granted record amounts of special assistance.
Dairy producers also experienced difficulties as prices dropped nearly 20 percent. Meanwhile, conditions for livestock producers improved as low feed costs and profitable hog and cattle prices bolstered many ranchers' financial condition. However, in Montana an extreme drought strained crop yields and livestock production.
The outlook for agricultural producers is mixed, with crop farmers predicting another tough year, while livestock producers expect another profitable year. Estimated prices for basic farm commodities like wheat, corn, soybean and dairy products remain low (see table). Unfavorable weather has also kept the progress of the winter wheat crop below the five-year average. Moreover, the Freedom to Farm bill sets reductions in the amount of aid for 2001, leaving farmers wondering how the government might respond. However, livestock producers are expecting to rebuild their herds and enjoy favorable prices and low feed costs throughout 2001, and the dairy market loss assistance program should alleviate the effects of lower dairy prices.
| Average Farm Prices | ||||
|---|---|---|---|---|
| 1997/98 | 1998/99 | 1999/2000 | Estimated 2000/2001 |
|
| Corn (Current $ per bushel) |
2.43 |
2.00 |
1.80 |
1.70-2.10 |
| Soybeans (Current $ per bushel) |
6.47 |
5.00 |
4.65 |
4.40-5.00 |
| Wheat (Current $ per bushel) |
3.38 |
2.65 |
2.48 |
2.45-2.75 |
| All Milk (Current $ per cwt) |
14.65 |
15.38 |
12.62 |
11.95-12.65 |
| 1998 | 1999 | Estimated 2000 | Estimated 2001 | |
|---|---|---|---|---|
| Choice Steers | 61.48 |
65.56 |
68.84 |
72.00-78.00 |
| Barrows & Gilts | 31.42 |
34.00 |
44.25 |
40.00-43.00 |
Source: USDA, estimates as of November 2000.
Note: These forecasts came from national and regional models developed at the Minneapolis Fed.
