June 25, 1985
Mixed signals have recently been received from key indicators of the Ninth District economy. While labor market conditions have continued to improve generally, most of the improvement has been seasonal. Some slackening of the pace of consumer spending has been noted throughout the district, although car sales and housing activity rose in some parts. The wood products sector is the only resource- related industry reporting good news, while bad news is still the norm for agriculture.
Employment
Labor market conditions have continued to show improvement, although
most improvement has been seasonal. The Ninth District's seasonally
adjusted unemployment rate fell a bit in April to just under 6
percent, despite a slight drop in seasonally adjusted employment.
Also, the increase in April employment was less than normal in the
Minneapolis-St. Paul metro area. But April's unemployment rate in
the Twin Cities dropped a little more than seasonally to only 4.2
percent, and teenage unemployment there, at around 10 percent, is
about as low as in any metro area in the nation. Normal seasonal
employment increases were noted in South Dakota, dropping the
state's unemployment rate to 5.1 percent and the Sioux Falls MSA's
rate to 4.4 percent. This April's unemployment rate in North Dakota
remained unchanged from last April's, at 6.4 percent. A Bank
director notes that North Dakota's stagnation was primarily in the
state's western part, which has been adversely affected by a
curtailment of energy production projects. Bank directors report
that Montana has been suffering from deteriorating conditions in its
agricultural and resource-related sectors; the state's unemployment
fell between March and April at less than the seasonal norm.
Consumer Spending
Some softening in the district's consumer purchases of general
merchandise was noted in May and early June. One large retailer,
noting that its April sales were better than expected, speculated
that some of its normal May business may have instead come in April
this year. By May's end, the retailer's year-to-date sales were up
10 percent over last year's. Another large retailer found that large
discounts were the only way to keep business brisk in May, curbing
store profits. Furthermore, this retailer's inventories are still
high and will have to be brought back in line by more discounts.
Recreational clothing—particularly jogging togs—has been an
excellent seller thanks to the unusually warm weather in the
district's population centers. Bank directors concur that retail
sales are generally flat-to-slowing throughout the district, with
the possible exception of eastern South Dakota.
Low-cost financing deals have propped up car sales into June. Two large domestic manufacturers have been left with low current inventories of trucks and cars. Both manufacturers have experienced year-to-date vehicle sales-especially truck sales-in excess of last year's good results. Sales were off in Montana, though, and also slowed in Sioux Falls, South Dakota.
Aided by falling interest rates, housing activity generally has grown. Sales of Minneapolis homes are up a whopping 31 percent this April, compared with last April. A major home builder association reports that its members had a record number of homes in the planning and building stages. Apartment construction has also taken off in the Twin Cities metro area, due to a combination of low interest and vacancy rates as well as to attempts to beat the possible enactment of federal tax laws unfavorable to real estate investment.
Early reports from tourist centers indicate that the pace of tourist spending—an important contributor to the district's economy in summer—is above last year's level in several spots in Minnesota. But tourist spending in North Dakota and Montana has been slowed by the strong U.S. dollar, which has kept Canadian visitors away.
Resource-Related Industries
District Bank directors report mixed conditions across several key
resource sectors. Imports, input substitution, and scrap iron
processing have all hurt the iron ore business in northeastern
Minnesota. As a result, extended shutdowns in ore processing later
this summer have been announced. Oil and gas exploration is way down
in North Dakota and Montana, with the recent cut in British oil
prices boding ill for future exploration in these states. Indicative
of this, a Bank director notes that only 30 rigs were operating in
North Dakota last month, compared with 70 in operation a year
earlier. In contrast, high demand for housing and paper is spurring
the wood products sector. A Bank director reports that a new wood-
products plant is opening in the Upper Peninsula of Michigan.
Agriculture
Bad news continues to crop up in the district's agriculture sector.
Farm prices continue to fall: The Minnesota farm price index was
down 14 percent in mid-May from its level a year earlier. Crop
prices declined even more precipitously than livestock prices did.
In Minnesota, the average price for all milk was the lowest in
almost five years. While warm, wet weather has aided crop
development in Minnesota and North Dakota, crop development in
western South Dakota and Montana has been hurt by a lack of
moisture.