July 1, 1983
The Ninth District economy is still on the mend. Gains in sales of homes, general merchandise, and autos and increased interest in tourism suggest that consumer spending has continued to strengthen. Manufacturing and oil and gas exploration have been improving as well. But metal mining has remained in the doldrums, and signs of recovery have been mixed in agriculture. So far, the recovery has been strong enough to halt employment declines, but not strong enough to stimulate considerable hiring. Bank lending, however, has recently picked up.
Consumer Spending
Consumer spending has continued to show the most convincing signs of
recovery. The most spectacular sign has been the continuing sharp
resurgence in home building and sales. In Fargo, North Dakota, for
example, building permits for 574 residences were issued in the two-month period April-May, more than five times as many as in that
period last year. In Minneapolis-St. Paul, home sales in May were up
35 percent from a year earlier. Improved home sales seem to have
helped boost home furnishings sales at two large Twin Cities
department stores this spring. These stores report that other items
have been selling very well too and that many consumers are no
longer waiting for sales to purchase. Outside Minneapolis-St. Paul,
recent general merchandise sales have been good as well, according
to Bank directors.
Another sign of recovery is that the April rebound in auto sales has continued through May and early June. A sales manager for one of the nation's largest auto manufacturers, for example, says that his firm's auto sales in the district have in recent weeks been up about 25 percent from a year ago. Verifying this gain are Bank directors' comments about strong auto sales this spring in their communities.
A further sign of recovery is that district consumers appear to have become more willing to spend on travel and recreation. The number of tourism inquiries in the Upper Peninsula of Michigan this spring has been five times greater than normal. And the tourism association in northeastern Minnesota reports that it has distributed just about all its brochures; it had expected the supply to last through August. Businesses also have seemed more interested in travel and recreation lately. A major Minnesota resort reports that its recent reservations for business meetings have been up substantially from a year ago.
Industrial Activity
District industrial production has been manifesting signs of
recovery too. The pickup in homebuilding, according to our last
report, accounted for much of the pickup in district manufacturing
through early spring, but in May and early June, auto sales have
been providing impetus to manufacturing as well. A radial tire
factory in Wisconsin has been having trouble keeping up with orders,
and an auto parts manufacturer in the Upper Peninsula recently
recalled a substantial number of workers. The district's one auto
assembly plant has been working two shifts and plans to hire
additional workers this summer if sales remain at present levels.
Gas and oil exploration has also started to revive. In mid-June, 63
rigs were active in Montana and North Dakota, compared to 47 in mid-March. A North Dakota director attributes this increase to a sizable
drop in drilling costs. Some district industrial activities are
still suffering, however—particularly iron mining. The only
Minnesota taconite plant to remain open throughout 1982 just
announced that it is shutting down for two months and laying off
1,000 workers.
Agricultural Conditions
In agriculture, signs of recovery have been mixed. Bank directors
continue to report that the Payment-In-Kind program is having a
positive impact on agriculture, but several who are in the industry
are concerned that excess worldwide supplies will put downward
pressure on prices. This mixed outlook is perhaps reflected in the
Minneapolis cash prices for corn, wheat, and soybeans; they remained
essentially unchanged between April and May, after increasing
markedly between January and April. Cold, damp weather in May and
early June is another worry. The height of Minnesota corn in mid-
June averaged only 7 inches, which is 3 inches below normal, while
soybeans averaged just half their normal 4-inch height.
Employment
The recovery in consumer spending and industrial production seems to
have arrested the decline in district employment. District wage and
salary employment, seasonally adjusted, has been essentially
unchanged since the fourth quarter, and in April it was 1.5 percent
below its level a year earlier. (National wage and salary employment
increased 0.4 percent between the fourth quarter and April and in
that month was down 1.1 percent from a year ago.) District
employment has stopped falling because employers have reduced the
number of workers they have been laying off. Minnesota's initial
claims for unemployment insurance in April and May were 20 percent
below their year-ago level. But employment has not risen because
most employers have yet to significantly step up their hiring. The
Minnesota Job Service currently lists 2,891 job openings in the
Minneapolis-St. Paul area, for example. Although this is up
considerably from last year's 1,780 openings, it is down
considerably from the approximately 8,000 openings listed in both
1978 and 1979. Conversations with several large district employers
corroborate these figures; none has done extensive hiring lately.
The district's largest manufacturer has not added any workers
nationwide for several months.
Employment conditions vary considerably among the district's four complete states, however. In Minnesota, wage and salary employment in April was down about 2 percent from a year ago, and this can be attributed largely to job declines of 4 percent in manufacturing and 29 percent in mining. Montana had a comparable mining decline, along with a 17 percent decline in construction jobs. That state's wage and salary employment was down roughly 1.5 percent. In South Dakota, payroll employment was unchanged from a year ago, mostly because trade and services employment held steady. In North Dakota, wage and salary employment was up 1.5 percent from a year ago. This stemmed from a 26 percent increase in construction employment that can be attributed primarily to a huge coal gasification project.
Financial Developments
As some industries have revived and employment declines have leveled
off, bank lending has increased in the district. Between late April
and mid-June, loans at country member banks rose 2 percent, the
first rise in many months. This rise is confirmed by Bank directors'
comments that loan demand has picked up in their areas. But
directors also indicate that the quality of many recent loan
applications has been poor.