January 28, 1986
Some signs of strength were evident in the Ninth District's economy at year's end. District consumer spending appeared to be reasonably strong in December. Most district states' unemployment rates have stabilized, and some new, resource-based employment is opening up in the hard-pressed northern areas of Minnesota and Michigan. Late in the year, crop prices picked up slightly, but not nearly enough to significantly alleviate the district's rural economic problems.
Consumer Spending
District retail sales of general merchandise in December appeared to
mirror the nation's upbeat performance. One chain reports that its
stores in the Minneapolis-St. Paul metro area were among its highest
gainers over the holidays. The discount operations of two other
chains experienced very good sales growth throughout the district.
Price markups generally held firm, which helped increase profits
further. A member of this Bank's Advisory Council on Small Business,
Agriculture, and Labor thinks that retailers in larger towns in
eastern South Dakota had good holiday sales and that retailers in
smaller towns there did better than expected, though not as well as
last year. Small retailers in agriculturally dependent areas of the
district generally continued to suffer from the effects of low farm
income.
District sales of motor vehicles, which were strong throughout 1985, finished the year on an uptick. The regional office of a domestic auto producer reports that its December sales were well above its goal. A Bank director from Montana notes that car sales there increased by 20 percent between 1984 and 1985. And a former Bank director from western Wisconsin reports that an auto dealership in that area had its second-best year in 40 years.
Spurred by lower mortgage rates, housing activity in the Minneapolis-St. Paul metro area was vigorous at year's end. During November, housing permits taken out in the Twin Cities were far greater than a year earlier, as were December home sales in Minneapolis. This strong performance raised Minneapolis home sales 17 percentage points above the 1984 level.
Tourist spending, an important source of income in parts of the district, has been uneven this winter. Skiing in Montana was hurt by poor snow conditions, but early snowfalls in northern Minnesota stimulated both skiing and dogsled racing. A Bank director from the Upper Peninsula of Michigan says that snowmobilers there are spending lots of money pursuing their hobby.
Employment
Although the district states' unemployment rates worsened somewhat
late in the year, part of the increase in unemployment rates was
surely due to seasonal variations. Also, a lessening of construction
employment may have been due to unseasonably cold November weather.
Moreover, attempts to seasonally adjust Minnesota's employment
indicated that it rose slightly between October and November, as did
districtwide employment.
Several noteworthy labor developments occurred in hard-pressed northeastern Minnesota. These include progress on plans to build a large paper mill employing 600 workers in Duluth; the possible reopening of a fiberboard insulation plant somewhere in the area; and the resumption of operations at two taconite plants that will return nearly 2,000 temporarily unemployed workers to their jobs.
Resource-Based Industries
Conditions varied among district resource-based industries at year's
end. Oil and gas activity in North Dakota and Montana declined from
1984 levels, matching the low prices that caused the condition. Coal
production in Montana showed no increase during the past year.
Taconite shipments from plants in northeastern Minnesota are
expected to be slightly less in 1986 than they were in 1985.
However, in the Upper Peninsula of Michigan, a big copper mine that
reopened recently plans to add 300 more workers in 1986. There are
also plans to build a taconite plant in the Upper Peninsula to test
a new cost-reducing technology. This technology has the potential to
significantly improve the competitiveness of the district's taconite
industry.
Agriculture
A few signs of slight improvement in the district's agricultural
sector occurred during the fourth quarter. Small improvements in
cash prices for corn, soybeans, and wheat raised the Minnesota farm
price index a bit in November and held it firm in December. This
Bank's most recent survey of district agricultural bankers found
that fewer bankers, although still a majority, expect farm earnings
to decline in the short term. However, the fact that fewer of these
bankers are seeking new farm loan accounts underscores their
apprehension about the farm situation. Finally, cattle operations in
the district have been hurt by recent price declines and expensive
hay.