Beige Book Report: Minneapolis
March 15, 1989
Ninth District economic conditions have continued to be fairly good. Unemployment rates have risen modestly, mostly due to seasonal changes. Consumer spending has been good. Prices have increased moderately and conditions in resource-related industries have been excellent.
Labor Markets
The employment situation has been fairly good throughout the
district. Between December 1988 and January 1989, the unemployment
rate in Minnesota rose to 5.1 percent from 4.1 percent. An analyst,
calling this increase a normal seasonal shift, notes that since 1980
the December to January increase has averaged 1.1 percentage points.
The unemployment rate in Minnesota in January 1988 was 4.9 percent.
The unemployment rate in the Minneapolis/St. Paul metropolitan area
dropped to 3.7 percent in December from 4.0 percent in November. A
director notes increasing tightness in the Minnesota labor market,
particularly in the retail sector. North Dakota's unemployment rate
was 5.6 percent in December, up from 5.3 percent in November and 5.0
percent in December 1987. The unemployment rate in South Dakota rose
to 4.6 percent in December from 4.3 percent in November, but was
lower than the rate of 4.8 percent in December 1987. Montana's
unemployment rate in November was 6.0 percent, up from 5.0 percent
in October. The unemployment rate in Michigan's Upper Peninsula was
8.7 percent in November, up from 6.7 percent in October, but lower
than the 9.6 percent rate in November 1987.
Consumer Spending
Consumer spending on general merchandise has been fairly strong. One
large retailer reports that February sales were up 11 percent from a
year ago; and same-store sales, a measure of sales in stores open a
year or more, were up 4.7 percent from February 1988. Another
retailer reports that February sales were lower than expected with
an 8.5 percent increase in sales over a year ago. Businesses in St.
Cloud, Minnesota are very optimistic with approximately $40 million
in bids for new construction expected to be made in the next two
weeks. Much of this construction is for schools, which is considered
a good sign of population growth. Inventories are at generally
acceptable levels throughout the district.
Motor vehicles have been selling well. Dealers for one domestic manufacturer report that sales in the first twenty days of February were down 6 percent from the comparable period in January, but were up 10 percent over the same period in February 1988. Sales were good in January for this manufacturer with car sales up 14 percent and truck sales up 15 percent from January 1988. March Is normally the biggest selling month for motor vehicles, so the next thirty days should set the tone for the next year. There is some uncertainty about the effect of recent interest rate increases on motor vehicle sales.
Housing activity has been fairly stable. The number of new housing permits issued in Minnesota increased by 4.4 percent from December 1987 to December 1988. Home sales in the Minneapolis-St. Paul metropolitan area were up 6.24 percent in January 1989 from January 1988.
Tourist spending has been good throughout the district. Heavy snowfall in the resort areas attracted a large number of skiers.
Prices
Prices have generally been rising. The consumer price index for the
Minneapolis/St. Paul metropolitan area rose by 4.9 percent from
December 1987 to December 1988. Elsewhere, reports are mixed with
one observer reporting remarkable price stability in manufacturing
durables, while also reporting sharp price increases for new lines
of farm equipment. One southern Minnesota farmer estimates sharp
increases in production costs for the upcoming year, ranging from 9
percent for grain used as cattle feed, to 14 percent for soybeans. A
large wholesaler for grocery stores reports that inflation rates for
food products are currently averaging around 4.6 percent.
Resource-Related Industries
Conditions have been excellent in resource-related industries. The
generally good snow cover in the district has restored cautious
optimism in most agricultural areas. However, last year's drought
continues to raise concerns about soil moisture adequacy in the
spring. Economic conditions in the lumber industry were excellent.
By one estimate, the pulp and paper industry has committed to $1
billion worth of capital investment in Minnesota over the last
couple of years, and a similar amount is on the drawing boards. A
large number of new lumber mills are being built and planned in the
Upper Peninsula of Michigan. The capital investments for these mills
range from $38 million to $300 million. Foreign markets are becoming
particularly important for the lumber industry, with 20 percent of
the output of one producer going overseas. Conditions in mining have
also been excellent. A foreign-owned company is expected to take
over an employee-owned smelting company located in Michigan's Upper
Peninsula. The employees are expected to receive about $60 million
for their shares of the firm.