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Beige Book Report: Minneapolis

May 3, 1989

Ninth District economic conditions have been generally good. The employment situation has been very good throughout the district. Consumer spending has been generally strong, although automobile sales have declined sharply. There has been some concern about rising prices. Conditions in resource-related industries have been good.

Employment
The employment situation has been very good throughout the district. The unemployment rate in Minnesota in February was 4.9 percent, 0.2 percentage points lower than in January and 0.1 percentage points lower than in February 1988. The unemployment rate in the Minneapolis-St. Paul metropolitan area dropped to 3.8 percent In February from 3.9 percent in January. Although labor market conditions are generally strong in Minnesota, a large computer manufacturing company closed its supercomputer division located in St. Paul and dismissed approximately 800 workers. The move was part of a nationwide cutback by the firm, which cost 3,100 workers their jobs.

The unemployment rate in North Dakota was 5.3 percent in February, down from 5.8 percent in January and 5.7 percent in February 1988. The unemployment rate in South Dakota was 4.5 percent In February, slightly lower than the 4.6 percent rate of February 1988. The unemployment rate in Montana was 6.4 percent in December 1988, up from 6.0 percent in November 1988. The unemployment rate in the Upper Peninsula of Michigan was 11.2 percent in January, up from 9.7 percent in December 1988 but down from the 13.9 percent rate in January 1988. A director notes that labor markets in western Wisconsin are tight, especially in the service sector, and that unemployment rates in the area are at their lowest levels for this decade.

Consumer Spending
Consumer spending on general merchandise has been fairly strong. One retailer reports strong sales in February and March with some signs of softening in early April. Another retailer reports that sales in March were up 14 percent over March 1988 and that year-to-date sales were up 15 percent from the comparable period of last year.

Car sales were down sharply from last year but truck sales held their own. Dealers for one domestic manufacturer report that car sales in March were 27 percent lower than in March 1988 and year-to- date sales were 15 percent lower than in the comparable period last year. However, they report that truck sales were 12 percent higher in March compared to March 1988 and 0.07 percentage points higher on a year-to-date basis. A dealer in the Minneapolis-St. Paul metropolitan area who sells cars from a number of manufacturers reports that the first three months of 1989 have been the worst in over twenty years.

Housing activity has been stable. The number of new housing permits issued in Minnesota was 24 percent higher in February than in January, although it was down 20 percent from February 1988. Home sales in the Minneapolis-St. Paul area were 11.4 percent higher in March from a year ago, although they were up only 1.2 percent on a year-to-date basis. Reports from Montana and South Dakota suggest that although new construction is slow, a substantial number of houses are being remodeled and upgraded.

A director surveyed several firms in a number of industries, from manufacturing through wholesaling, retailing, and contracting, and found that over 50 percent of the firms projected an increase in sales for the next year. Manufacturing firms, in particular, were very optimistic, In addition, two of the five manufacturers who were separately contacted reported plans to expand capacity this year.

Prices
There is some evidence of inflationary pressures in the Ninth District. An index of prices received by Minnesota farmers was 3 percent higher in March than in February and 18 percent higher than in March 1988. Unleaded gasoline prices in the Minneapolis-St. Paul metropolitan area were 12 percent higher In April than a year ago. A director reports that manufacturers have recently raised prices fairly sharply.

Resource-Related Industries
Conditions in resource-related industries have been generally good. Reflecting the rise in prices received by farmers, the average value of Minnesota farmland rose by 9 percent during the year ending July 1988. Farmland values rose in all parts of the state except northeastern Minnesota. The greatest gain, 17 percent, was in the southwestern part of the state. Agricultural areas throughout the district reported adequate snowfall in the winter. Soil moisture levels were slowly recovering from the effect of last year's drought. Flooding in the Red River Valley of North Dakota has increased soil moisture content in that area. However, farmers in South Dakota continued to be concerned over low soil moisture levels. The district's lumber industry continued to enjoy strong demand for its products. The major problem facing the lumber industry has been ensuring adequate supplies of raw materials. Environmental concern has delayed logging activity. A large paper products manufacturer plans to expand its facilities in Minnesota, adding about 190 permanent jobs and employing up to 2,000 people during construction. Mining activity in Montana and the Upper Peninsula of Michigan continued to be strong.