March 20, 1986
Aided by lower interest rates, conditions in much of the Ninth District have stabilized early this year. Consumer spending, employment, and construction have all done fairly well. Construction has been generally strong, and many new construction projects are planned. Conditions in the resource-related industries, however, are still mixed, and only a little improvement was evident in the agricultural sector.
Consumer Spending
Retail sales of general merchandise in the district have done fairly
well so far this year. After experiencing strong year-end holiday
sales, one diversified retailer reports reasonable sales growth in
January, traditionally a slow month, and even stronger sales in
February. In addition, the retailer notes that the sharp growth in
credit sales, a cause of concern in some quarters, finally slowed
late in 1985. Reports from large shopping malls in Sioux Falls,
South Dakota, have been encouraging, with strengthening sales also
evident in February. Growth in retail sales has not been uniform
throughout the district, however. For example, Bank directors from
northern and central Minnesota note lackluster sales in their
communities.
Despite some slowing late in February, motor vehicle sales have been good so far this quarter. One domestic manufacturer reports that its districtwide sales were up about 15 percent through February, although it has a large inventory of cars and trucks available.
Spurred by lower mortgage rates, housing activity has picked up in district areas with stable or growing populations. Compared with year-earlier levels, residential building contracts awarded in January were up 12 percent in Minnesota and up 19 percent in the Minneapolis-St. Paul metro area. January home sales in the Twin Cities area were also up a healthy l2 percent from a year ago. In parts of North Dakota and in Sioux Falls, South Dakota, existing home sales appear to be up this year.
Employment
After worsening somewhat in the last half of 1985, employment
conditions have stabilized in some district areas but have worsened
in others. The district's overall seasonally adjusted unemployment
rate fell a few tenths to 6.5 percent in January. In South Dakota,
January employment was virtually unchanged from its January record
level a year earlier. The typical seasonal employment decrease
between December and January was the smallest there since January
1976. In North Dakota, though, unemployment was up, primarily due to
lower employment in the oil and construction sectors. Although
seasonally adjusted employment in Minnesota increased between
December and January, the unemployment rate still rose; however,
part of the increase was probably due to some changes, made in
December, in how the rate is measured.
Resource-Related Industries
Conditions in resource-related industries in the district have
remained mixed. The drop in oil prices has continued to slow
district oil and gas activity. A Bank director reports that the rig
count in North Dakota was down to its lowest level in five years—22
rigs (compared with 150 at its peak). In contrast, the falling
dollar bodes well for district paper production. In Duluth,
Minnesota, financing is now arranged for a big new paper mill, and
another paper mill in northern Minnesota is modernizing its plant.
But a Bank director reports that wood pulp logging for paper mills
in the Upper Peninsula of Michigan has been hurt by imports, and a
lumber mill in Montana has closed. An iron pellet plant in northern
Minnesota is reopening in March, but with over 100 fewer workers
than were originally employed there. A reopened copper mine in the
Upper Peninsula is now hiring workers.
Construction
Construction activity in the district has generally been strong, and
many new projects have been announced. Nonresidential building
contracts in January were up 5 percent in Minnesota since January
1985. Bank directors report numerous ambitious construction projects
in the works. In and around Duluth, Minnesota, several projects—
including a large paper mill, a mall expansion, and expansions of
several public facilities—are expected to bring $500 million of
construction activity to that hard-pressed area. Noteworthy future
projects in South Dakota include a convention center and hotel in
Pierre and a new community to house B-l bomber personnel in the
Rapid City area. North Dakota also expects to benefit from $200
million in military-related construction, in connection with nuclear
missiles.
Agriculture
Little improvement was seen in the district's agricultural sector in
the past months. Bank directors report little change in conditions
in their areas. One banker in South Dakota thinks that a third of
the indebted farmers there will eventually leave farming, although
not all this year. On a brighter note, a Bank director reports that
the winter wheat crop in Montana looks good. And prices of farm
goods have increased some recently. The Minnesota farm price index
rose again in January, although it still remained 9 percent below
its year-earlier level. Livestock prices have deteriorated, however,
even though ranchers have kept herd sizes small.