May 4, 1988
The Ninth District's economy seemed to strengthen a bit in the first quarter of 1988. Labor market conditions remained favorable, and several components of consumer spending grew. The recent stability in agriculture was reaffirmed by many observers. And some positive developments occurred in the district's major resource-based industries.
Labor Markets
In the First quarter, labor market performance strengthened.
Minnesota's unemployment rate dropped 1.3 percentage points between
January and March, falling to 4.8 percent. In addition, Minnesota's
initial unemployment claims declined during both January and
February, and the Minneapolis-St. Paul help-wanted advertising index
rose in those months. The favorable employment conditions extended
beyond Minnesota. In North and South Dakota, unemployment rates
dropped significantly between last February and this February. And
preliminary estimates From Montana and Michigan's Upper Peninsula
also indicate falling unemployment. In Montana, employment will be
helped by job growth at Malmstrom Air Force Base, where 650 more
military personnel and their families are expected to arrive by
year's end.
Consumer Spending
Sales of general merchandise appeared to grow modestly. Two major
chains operating in the district report reasonable year-over-year
sales growth in March, although these reports reflect last April's
Easter sales. Another smaller chain reports slack sales in the first
quarter and says its inventories have started to rise. However, a
group of department stores, operating in many smaller cities of the
district, reports good sales increases during March and April. This
favorable performance was attributed in part to increased optimism
about the outlook for the rural economy. None of our retail sources
experienced any unusual consumer credit problems.
District managers of domestically manufactured motor vehicles report that their operations again rolled up sizable sales gains. One manager notes that his year-to-date sales were up 10 percent for cars and 20 percent for trucks. Another manager reports year-to-date sales increases of 7 percent for cars and 13 percent for trucks. Inventories were no higher than normal.
In the first quarter, home sales appeared to fall off from their rapid pace of a year ago, but year-ago sales were unusually brisk. In the Minneapolis-St. Paul metro area, home sales were off 33 percent. The most recently available figures show that residential building contracts in Minnesota were off during February. A director of this Bank's branch in Helena, Montana, notes that housing starts in Billings were negligible, but another director notes that housing prices had stabilized in Miles City, Montana.
Bank directors also say the outlook for tourist spending is favorable. According to a director from South Dakota, advance bookings for summer visits were coming in at a good clip. Another director reports that tribal gambling operations in Michigan's Upper Peninsula were doing well. And a representative of this Bank's Advisory Council on Small Business, Labor, and Agriculture reports that its members expect a 15 percent increase in Michigan's tourist activity, and an 8 percent increase in South Dakota's.
Agriculture
The district's agriculture sector continued to stabilize. Although
the Minnesota farm price index showed a 1 percent decline in crop
prices between February and March, this still left prices 12 percent
higher than a year earlier. Beef-cattle prices reached their highest
level on record and, as a director from South Dakota notes, sheep
prices were good, too. Of the rural bankers responding to this
Bank's quarterly survey of agricultural credit conditions, 61
percent believe that first-quarter farm profits were higher than a
year earlier. More bankers also believe that farmers purchased more
farm equipment. And the surveyed bankers placed fewer farmers at
their debt limits than they did a year earlier. But some North
Dakota bankers mention that a shortage of boxcars has made grain
shipment difficult. And several observers report excessively dry
conditions in parts of Montana and the Dakotas.
Resource-Related Industries
Some positive developments occurred in the district's resource
sector. Drilling in the oil patch of western North Dakota appears to
be picking up, though it is not nearly as active as during the
better years of 1983-85. In Montana, interest in new mining ventures
is running high: four new gold mines and a silver and copper mine
have been proposed. New processing technology is expected to help a
big iron-ore mine in Michigan's Upper Peninsula. And this area's
slightly bigger forest products industry is currently running at
capacity.