August 5, 1986
Overview
Ninth District conditions have not changed much in the last few
months. Some employment indicators have continued to move favorably.
Consumer spending may have softened a bit, but still is not weak.
The tourist industry still seems to be having a good summer.
Resource-related industry performance remains mixed, with problems
continuing in the extractive sectors. Little has changed in
agriculture except most animal prices, which have increased.
Employment
Unemployment rates in the Ninth District are still falling. The
overall district (seasonally adjusted) unemployment rate dropped
from 6.2 percent in April to 5.8 percent in May. During that
period, Minnesota's rate dropped to 5.4 percent, its lowest level
since September 1981. While the district's improvement is
encouraging, it does not indicate growing labor demand; the rate
drop was primarily due to a decline in the labor force. Jobs did
increase significantly in the Minneapolis-St. Paul metropolitan
area, though, which helped ease the stress of workers who have
migrated there from more troubled parts of the district. District
Bank directors report that other metro areas showing some employment
strength were the Sioux Falls area of South Dakota and the La
Crosse-Eau Claire area of west central Wisconsin.
Consumer Spending
Overall, retail sales of general merchandise have been a bit on the
soft side lately, but they are probably still ahead of last year's
pace. One retail chain reports that its recent sales have stayed in
line with expectations. A Bank director notes that sales have been
good in the Fargo and Grand Forks areas of North Dakota, but that
this success was probably at the expense of smaller surrounding
cities. Another director reports that the outlook at a large mall in
Duluth, the largest city in hard-pressed northeastern Minnesota, is
bullish.
Sales of motor vehicles generally held firm in June. One large domestic manufacturer reports that its car sales were 3 percent higher this June than last, and while its truck sales were down 10 percent, it only has about two months of truck inventories on hand. The most recent reports indicate that district vehicle sales early in July were 20 percent ahead of sales a year earlier.
Scattered reports indicate that housing activity has remained strong in the Minneapolis-St. Paul area, but may have weakened in some other parts of the district. In the Twin Cities, residential building contracts were 55 percent higher this May than last and home sales were 17 percent higher this June than last. Also, members of this Bank's Advisory Council on Small Business, Agriculture, and Labor report housing growth in Baldwin, Wisconsin, and Fargo, North Dakota. But directors of this Bank's Montana branch note slack housing markets in the Bozeman and Billings areas.
Tourism
The tourist industry, an increasingly important sector of the
District economy, is having a good summer. Tourism-related
employment in South Dakota, for example, grew more than 47 percent
in the last 10 years-much more than twice the growth rate of non-
farm employment there. Group travel in Montana is currently 20
percent ahead of last year. Attendance at campgrounds appears to be
up throughout the district. Bank directors report that tourist
travel to the Upper Peninsula of Michigan and northern Minnesota is
good; many Canadians have been passing through Minnesota on their
way to the Expo in Vancouver.
Resource-Related Industries
The performance of major resource-dependent sectors continues to be
mixed. A Bank director reports strong demand for wood products--
including pulp, paper, lumber, and waferboard--although prices
haven't increased. Indicative of this strength, a Canadian company
plans to build a $10 million wood fiber sheeting plant in
International Falls, Minnesota. This would partially replace the
jobs lost when a U.S. corporation closed a siding plant there in
December 1984. However, the district is doing very little drilling
and almost no exploration for oil and gas, in either Montana or
North Dakota. In fact, even some producing wells are being capped.
And in conjunction with falling oil prices, coal prices have dropped
10 percent in Montana. Further, the bankruptcy of a large national
conglomerate has resulted in the closing of another, jointly owned,
iron ore processing plant in northeastern Minnesota. The surviving
owner has lessened the impact, though, by announcing plans to triple
raw ore production at a mine in that region.
Agriculture
Agricultural conditions remain nearly the same as a few months ago.
Crop conditions still look good, and crop prices are still low. This
Bank's latest survey of district rural lenders indicates that farm
earnings and land values continued to decline in the second quarter,
although the respondents' loan portfolios did not deteriorate much
further. Problems caused by low crop prices are being eased somewhat
by government deficiency payments and lower fuel and fertilizer
costs. And a Bank director reports significant recent strengthening
in cattle and hog prices, the former occurring despite increased cow
sales resulting from the dairy buy-out program.