October 31, 1990
Ninth District economic conditions have been showing signs of weakness recently. Labor market conditions have been mixed. Growth in spending on general merchandise has slowed down lately, automobile sales have been sharply lower, and housing activity has declined. Conditions in the construction industry and in manufacturing have been mixed. Resource-related industries have been doing well. Wage and price increases have remained generally moderate.
Employment, Wages and Prices
Labor market conditions have been mixed in the district. Minnesota's
unemployment rate was 4.3 percent in August, down from July's 4.6
percent level but up from 4.0 percent in August 1989. Unemployment
rates in Montana, North Dakota, and South Dakota were lower in
August than in July and also lower than in August 1989.
Manufacturing employment in the district has been flat for over a
year. Production, construction, and electrical workers are reported
to be in oversupply, but shortages are reported for medical and
hospital workers. The nationwide slowdown in residential
construction has resulted in layoffs among housing construction
suppliers.
Wage increases have remained moderate except for technically skilled specialists whose wages have been rising sharply. The main source of pressure on labor costs has continued to be from benefits, mainly health insurance and workers compensation premiums. However, some directors report that they are expecting sharply higher wage increases beginning next year. Price increases, except for fuel costs, have generally been moderate. Trucking companies have begun to impose surcharges to recoup their sharply higher fuel costs. An index of prices received by farmers has declined substantially.
Consumer Spending
District retailers of general merchandise report a slight slowdown
in sales growth lately. One major retailer reports that, compared to
a year ago, September sales were up 2 percent and sales in the first
9 months of the year were up 4 percent. An appliance retailer
reports that September sales were 4 percent higher this year than
last. Retailers report that they are less optimistic about sales in
the fall season than they were before the Gulf Crisis. Throughout
the district, inventories are reported to be at acceptable levels.
New car sales have been sluggish. Dealers for one manufacturer report that September new car sales were 20 percent lower than a year ago. However, last September's sales were artificially boosted by incentive programs. These dealers expect October sales to be much better when compared with last year. Automobile sales, however, have generally been lower this year than last. Through the first 7 months of the year, Minnesota's new car and truck registrations were down 13.3 percent from last year. This decline has been concentrated in the Minneapolis-St. Paul metropolitan area. Sales in the rest of the state have held up fairly well compared to last year.
Housing starts have declined sharply in Minnesota. The number of new housing permits issued in that state was 25 percent lower this August than last. The decline was primarily concentrated in the Minneapolis-St. Paul metropolitan area where the number of new housing permits declined by 37.7 percent over the same period. In the first eight months of this year in this area, the number of permits issued has been the lowest since 1982. However, housing sales have been robust in the metropolitan area. Housing activity elsewhere in the district has been moderately good.
Construction and Manufacturing
Conditions in the district's construction industry have been mixed,
with particular weakness in the Minneapolis-St. Paul metropolitan
area. In that area, the dollar value of contracts for future
construction in August was 16 percent lower than in August 1989.
There is a substantial oversupply of office and commercial space,
and very few projects are expected to be started for at least a
couple of years. Elsewhere in the district, construction activity
has been moderately good.
Conditions in the district's manufacturing industries have been mixed lately. The computer and electronics industries in the district are reported to be in a recession. Sales of recreational vehicles are reported to be 25 percent lower this year than in 1989 and 40 percent lower than in 1988. However, aircraft industry suppliers report that their sales are 30 percent higher this year than last, and the medical instruments industry is reported to be growing strongly. This industry expects a 10 to 15 percent growth in sales next year from this year's strong levels. Defense industry and ordnance suppliers have recently seen a sharp pickup in orders.
Resource-Related Industries
The district's resource-related industries appear to be fairly
healthy. Crop yields throughout the district have been above
expectations and close to record setting levels. Recent declines in
agricultural product prices have prompted farmers to store crops
rather than sell them. Ranchers in the district report that this
year has been the best in their experience. Livestock prices have
been holding fairly steady and feeding costs have been relatively
low. The mining industry has also been doing well. However, the
lumber and wood products industries have begun to feel the. effect
of the slowdown in home construction.