Beige Book Report: Minneapolis
December 1, 1987
Black Monday appears to have had minimal effect on the Upper Midwest economy, at least according to the information received so far. There have been a few reports of order cancellations for commercial and industrial equipment. And automobile and retail sales have both been flat in November. However, our sources attribute that weakness to causes other than the stock market. The mining sector remains quite strong, and virtually all reports from the agricultural sector are rosy. Labor markets remain quite tight in almost all parts of the Ninth District.
Labor Markets
Labor markets districtwide are generally tight, as they have been
for the last several reports. In North Dakota, the rate of
unemployment in September was 3.4 percent, down from 3.8 percent in
August and from 4.8 percent a year ago. In South Dakota, September
unemployment was 3.9 percent, up slightly from August and up from
3.3 percent last year. In Minnesota, unemployment was 4.6 percent in
September, the same as in August, but up from 4 percent in 1986. The
rise in the rate of unemployment in Minneapolis/St. Paul, noted in
our last report, continued. There, unemployment rose from 4 percent
in August to 4.2 percent in September. Of course, these are still
very low levels. In the Upper Peninsula of Michigan, the labor
market continued its noteworthy performance of recent months. There,
although the labor force declined slightly, the unemployment rate
fell from 8.3 percent in August to 7.3 percent in September.
Unemployment in Montana also declined, to 5.5 percent in September,
from 5.8 percent a month ago and 6.6 percent a year ago.
Consumer Spending
New car sales have been weak in November in many parts of the
district. One large automobile manufacturer reports November sales
to be down about 8 percent from year-ago levels. Some slackening of
sales had been expected anyway, however, and it appears that
consumers may be waiting for another incentive program. Truck sales
have been quite strong, and inventories are a bit on the low side.
Some reports say early holiday shopping has been weak, and these sources believe the stock market crash is at least partly to blame. However, one large retail reports that October sales were the best since February. Its sales showed only a slight decline after the stock market crash and then remained a bit soft in early November. The retailer does not attribute this recent weakness to stock market action and is confident of brisk holiday sales. All our contacts expect a highly promotional holiday season, with many good bargains for consumers. Wholesale food prices are down and should quickly translate into some reduction in retail prices.
Resource-Related Industries
Little has changed in the mining sector since our last report. The
boom in gold mining continues, and copper production is up. In South
Dakota, a heavily debated moratorium on surface mining was recently
defeated. Oil and gas drilling is up from its lows, although recent
weakness in petroleum prices may constrain that activity over the
coming months. In the Upper Peninsula of Michigan, taconite
production is up, as is paper production. Spot paper shortages are
being reported.
Agriculture
News from the farm sector remains quite rosy, and farm income is up
throughout the district. Of bankers responding to our latest survey
of agriculture credit conditions, 54 percent said third-quarter farm
income was higher than a year ago, and only 11 percent said it was
lower. Farmland prices appear to have bottomed out and, according to
Bank directors, may even be rising a bit in some areas. According to
some sources, the Conservation Reserve Program (a federal program
for taking land out of production) has helped by placing a floor on
ag land prices. Although volatile recently, livestock prices have
remained at generally profitable levels. And grain producers have
benefited from bumper crops, good harvest conditions, reasonable
prices, and federal deficiency payments.
Farm spending has been increasing. Tractor sales are up sharply, and a North Dakota tractor manufacturer is producing at or near capacity. As reported last month, farmers are using improved cash flows to pay down their debts. One ag banker even reports that farmers complained of interest rates being too low—obviously reflecting their shift in position from net debtor to net creditor. In South Dakota, a new facility for a million laying hens is planned; its construction should begin in spring of 1988.