March 13, 1984
As the Ninth District's snow cover inexorably deepens, so does its recovery. The most recently available statistics point toward general improvement in the labor markets. Similar to nationally reported trends, consumer spending has continued to be quite strong. Construction and manufacturing activities have generally sustained their upbeat performance into 1984. Agricultural conditions have generally not improved. Financial sector performance is consistent with the pace of the recovery.
Employment
The latest available data show continued improvement in labor market
conditions. A prominent local economist estimates that in December
seasonally adjusted unemployment in Minnesota fell to 7 percent, 1.2
points below the national average. As expected, the unadjusted rate
for the Minneapolis-St. Paul metropolitan area rose slightly in
December, but it was still only 5.6 percent. And the Conference
Board's help-wanted advertising index for Minneapolis rose further
in December. Unemployment rates remain below the national average in
other parts of the district as well. In January, the unemployment
rate was 6.5 percent in North Dakota and lower in its oil-producing
area. South Dakota had only 5.3 percent of its labor force
unemployed at year's end. But the Duluth-Superior metro area and the
Upper Peninsula of Michigan continue to suffer from structural
unemployment. The latter, for example, still had an unemployment
rate of 17.3 percent in December.
Consumer Spending
So far this year, consumer spending has been growing at a healthy
clip. Following the national trend, general merchandise sales have
remained strong. One large retailer in the Twin Cities reports that
its sales growth rate exceeded its target early this year. Retailers
in downtown Rochester, Minnesota, also report good sales this year.
This Bank's directors from Montana, the Dakotas, and Wisconsin
report that retail sales in some places during January were better
than a year ago.
Motor vehicle purchases in the district also mirrored the national strength. The district manager of one large domestic auto manufacturer reports that in January car and truck sales were over 65 percent higher that a year earlier. A January survey of Minnesota auto dealers shows excellent sales gains throughout the state, with both domestic and imported autos selling briskly. Many South Dakota dealers had a great February, with double-digit sales gains reported for both new and used cars. Directors' reports from North Dakota and Montana indicate that auto sales have been good throughout the rest of the district, too.
Housing activity in the district posted big gains recently as well. January home sales in the Twin Cities metro area were up 58 percent from January 1983. Growth in that area dropped off a bit in February, but remained in double digits. According to a director, variable rate mortgages are helping maintain the good market in Billings, Montana. Another director notes that a lot of housing activity is occurring in many areas of North Dakota.
Construction
Buoyed by the strong demand for housing and by space needs of small
industrial users, construction activity has continued to recover so
far in 1984. A recent survey of contractors and equipment
distributors in Minnesota and the Dakotas found that a solid
majority believed that construction activity was still on the rise.
The Twin Cities Metropolitan Council expects new housing starts to
rise 10 percent in 1984. Directors note some favorable signs outside
the Twin Cities. One contractor in North Dakota expects highway
construction activity to rise 20 percent this year. In February, a
record number of building permits were issued in Rochester,
Minnesota. Finally, an 18-story office building is going up in
Billings, Montana.
Manufacturing
Good news is generally prevalent in the district's manufacturing
industries. Paper production has started on the way to what appears
to be an exceptionally good year. Low costs are helping that
industry's profit margins. Scattered reports from district directors
about other manufacturers are generally favorable. A construction
supply firm in Wisconsin is doing extremely well. A large national
firm there expects its employment to be up to full strength this
spring. A new high tech manufacturing facility is opening in rural
Minnesota. And a nondefense-oriented manufacturer of electrical
controls in South Dakota has a big backlog of orders. The district's
farm implement manufacturers, however, are still having a tough
time.
Agriculture
A director sums up the farm picture by quoting one of his sources:
"Agriculture is a powder keg—same as in 1900. But now they don't
have Inflation to cover up mistakes nor the FHA to bail them out."
In this Bank's recent survey of Ninth District ag lenders, only 22
percent thought net farm earnings in the first quarter of 1984 would
exceed year-earlier levels. Farm balance sheets have obviously been
hurt by drops in land value. A director in Montana reports that much
land is for sale, even at current prices. Some good farm news is
reported, though. Cattle prices are improving and encouraging signs
have appeared in the feeder pig futures market. And the winter wheat
crop seems to be in good shape.
Finance
Financial sector activity is generally consistent with the pace of
the recovery. District directors report good deposit and loan growth
in southern Minnesota. A large South Dakota bank's deposits and
loans are holding steady at a time when they usually decline.
Seasonally adjusted district consumer installment credit rose at
year's end, reflecting the unusually large increase in holiday
buying. The only soft spots appear in ag lending. In late December,
a majority of respondents to this Bank's survey of district ag
lenders felt that their loan-to-deposit ratios, averaging slightly
over 60 percent, were too low.