June 24, 1986
Summary
Ninth District conditions appear to have improved somewhat during
the second quarter. Some employment indicators moved favorably in
April. Some components of consumer spending may have softened a bit
during May, but big-ticket durables remained strong. Some hard-
pressed non-metro areas are being helped by increased tourist
spending. Resource-related industry performance remained mixed:
extractive sectors suffered while wood products sectors prospered.
And while both crop and export conditions improved in the
agriculture sector, little else did.
Employment
Labor market indicators picked up a bit in April. The district's
seasonally adjusted unemployment rate fell to 6.2 percent in April,
from 6.6 percent in March. The Minneapolis-St. Paul metropolitan
area experienced a larger-than-seasonal decline in its unemployment
rate, too. Unadjusted figures from state employment services show
large, albeit partially seasonal, employment gains and unemployment
rate declines in all district states. Only the Upper Peninsula of
Michigan exhibited little improvement.
Some good news is finally evident in the manufacturing sector. Both of the Dakotas logged small increases in manufacturing employment during April. And while one computer company announced another layoff in Minnesota, it was more than compensated for by a callback issued by another computer firm.
Consumer Spending
Retail sales of general merchandise may have softened a bit between
April and May, according to two large district retailers. Still, one
of them recorded a 9 percent year-over-year increase this May and
notes that the falling dollar is helping to stimulate substitution
of American-made goods for Japanese goods. A spate of home sales has
stimulated heavy purchasing of home items. A chain of department
stores reports that Father's Day sales of menswear were good.
Another chain reports that neither its inventories nor its credit
sales are excessive. Bank directors again note the slack retail
conditions in small cities and towns, particularly in western
agricultural and energy-producing regions.
Auto sales appear to have improved in May. One large domestic manufacturer has had particular success selling trucks in this district. Its truck sales were 13 percent higher this May than last. Currently, neither its truck nor its car inventories are excessive, and the firm is optimistic about third quarter sales. As in the case of retail sales, Bank directors note slack auto sales in some non- metro areas, including Miles City, Montana, and parts of western Wisconsin.
Outside of North Dakota and Montana, housing activity appears to have stayed fairly strong. In both Minneapolis and St. Paul, home sales during April and May were way above their levels a year earlier. Low interest rates, economic growth, and good weather have all helped there. Realtors in South Dakota also have found much buyer interest, particularly in the eastern half of the state and its Sioux Falls metro area. New homebuilding is down from last year in Fargo, North Dakota. Residential construction in the oil and gas producing western part of the state has declined substantially.
Tourism
Many non-metro areas in this district are hoping that more summer
tourism will help stimulate their economies. Early reports indicate
that this is happening. A branch Bank director from Montana says
that reservations at Yellowstone Park are already up 20 percent from
last year. Campgrounds overflowed during the fishing opener in the
Indianhead region of northwestern Wisconsin, where inquiries about
summer travel are running far ahead of last year's pace. In
anticipation of a good season, there has been a lot of resort
expansion in the Upper Peninsula of Michigan, where inquiries are
also up from a year ago.
Resource-Related Industries
Performance in large resource-related sectors has continued to be
mixed. Wood products—including pulp, paper, and lumber are all
fairly strong. The new paper mill at Quinnesec, in Michigan's Upper
Peninsula, is very busy. The high level of building activity
nationwide has created demand for lumber and other building
products, such as waferboard. A director does report timber industry
concerns about a Forest Service plan to restrict the allowable
harvest in northwestern Montana, though. Falling energy prices have
greatly reduced prospects for oil and gas exploration in Montana and
western North Dakota. A Bank director notes that only 9 rigs are
operating in Montana now, whereas 23 were operating last year—and
that was way below the peak number. Coal prices and production are
not being helped by low oil prices. One bright mining spot is noted,
though: A platinum mine is opening in Montana.
Agriculture
Recent news in the agricultural sector has been mixed. The Minnesota
farm price index rose 3 percent between April and May, yet was still
6 percent below its level a year earlier. The fall of both farm
prices and the U.S. dollar should help stimulate export sales;
soybean exports are already up over last year. Exports are
particularly important to Minnesota and North Dakota, which ranked
seventh and eighth, respectively, among farm exporting states last
year. Good weather has allowed timely planting and development of
District crops. Ground moisture levels in Montana were the best in
five years. Overall field conditions are noted as above average in
both Montana and North Dakota. The much-publicized dairy herd buyout
program has yet to cut milk production much. Cattle producers are
reported to be displeased with the buyout's attendant herd
slaughter, which is believed to have put downward pressure or
already low cattle prices. Previously declining dairy land values
are said to be likely to have bottomed out.