January 19, 1994
As 1993 ended, most economic sectors in the Ninth Federal Reserve District showed signs of growth. Commercial and residential construction is very active in virtually all areas of the district. Manufacturing, particularly in small and midsize firms, continues to grow. Refinery production is up, demand for construction-related forest products remains high and prospects for iron mining are positive. Conditions are unchanged in agriculture, which ended 1993 with much lower grain stocks than a year earlier and essentially stable livestock output. Consumer spending through the holiday season continued improving at the pace set earlier in the fall. After a slow start, winter recreation enterprises report good business. Unemployment rates remain substantially below those of the United States as a whole and employment is up from year-earlier levels. There is little evidence of upward pressure on wages or prices.
Construction and housing
One city building inspector in Minnesota characterized 1993 as "a
year that is nothing short of phenomenal." Construction was the
strongest sector of the economy across the Ninth District throughout
1993, with no apparent slackening as the year ended. News media,
district directors and other sources reported continued strong
residential construction across the district and active commercial
building in many areas. Residential construction is booming in
western Montana, Sioux Falls, S.D., and Rapid City, S.D. 1993 was
also a record year for construction in Fargo, N. D., and Moorhead,
Minn. Construction of new retail facilities continued in the Upper
Peninsula of Michigan. Publicly bid commercial and heavy
construction in Minnesota and the Dakotas for the year through
November was 12 percent ahead of year-earlier levels.
Manufacturing
Manufacturing continues to grow. "Many firms reported strong third-quarter growth and the fourth quarter was even better," said one
director, speaking of manufacturers in the Minneapolis-St. Paul
area. He also noted that most manufacturing firms were now running
at 85 percent of capacity, up substantially from a year ago and that
small and medium firms had the most growth in orders. Moreover, a
director from South Dakota reported an increase in the establishment
of small and midsize manufacturing facilities in that state. Growth
in industrial electricity use continues above the five-year trend
rate in Minnesota and South Dakota. Manufacturers of builders
hardware, residential heating equipment controls and other
construction-related products report excellent sales. Responding to
continuing high demand for building materials, a Canadian firm
reportedly plans to establish a building-board plant in North Dakota
that will use wheat straw and other crop residues as raw material.
Natural resource industries
Refinery output in December was up from year-earlier levels, largely
due to 1993 capacity expansions in Minnesota and Montana. Crude
petroleum production was marginally below year-earlier levels,
reflecting aging of producing wells, and drilling activity was
essentially unchanged.
Production of oriented-strand board and other wood-based plywood and lumber substitutes is very strong in Minnesota, Wisconsin and Michigan. But the forest products industry's outlook continues to vary by product and location. A recent timber sale in Montana set a record for stumpage prices in that state, reflecting generally declining quantities of timber offered for sale. The paper industry continues to experience overcapacity and low prices, but output is essentially stable.
"Mine operators are generally optimistic about 1994 and expect output to exceed levels of the previous three years," said one iron ore industry spokesperson. This is in spite of a slight output decline in 1993 relative to 1992, largely related to a strike- related closing of one mine. Other mining is essentially stable. Copper and gold output is unchanged from earlier in the year. Copper prices have recovered slightly from lows set earlier in the year, allaying fears of possible mine closings.
Agriculture
Agriculture showed little change in the final weeks of 1993. Grain
prices were generally high, reflecting low stocks due to adverse
growing conditions earlier in the year. Fall tillage in corn and
soybean growing areas was completed at near normal levels prior to
freeze-up, in spite of wet conditions earlier in the year. In
northwestern Minnesota and eastern North Dakota, though, these
tillage operations lagged considerably, which may retard spring 1994
planting operations. Cattle, hog and sheep slaughter numbers are
essentially the same as a year ago, while prices continue to trend
slightly downward. While prices for feeder cattle have declined
somewhat from earlier in 1993, they remain high relative to other
recent years, apparently reflecting confidence in farmer and feeder
expectations of continued profitability.
Consumer spending and tourism
Reports from a broad range of sources including directors, advisory
council members, news media, mall managers, vehicle dealers
associations and company representatives reaffirmed earlier reports
that consumer confidence has rebounded from earlier in 1993 and that
consumer spending is growing. In late 1993, passenger vehicle sales
were strong across the district and several sources noted that
pickups and sport utility vehicle sales were particularly strong.
Retail reports on holiday season sales of general merchandise are
largely positive. The manager at a large Minneapolis-area mall
reported very strong sales as did counterparts in Sioux Falls, S.
D., and in Grand Forks and Fargo, N. D. And a director from Montana
reported that holiday season sales in that state were very good and
generally well above 1992 levels. But a few firms reported a
disappointing holiday season; one major retailer had December
department store sales that were essentially flat from a year
earlier.
In the closing weeks of 1993 the winter tourism and recreation season picked up momentum, particularly in Montana. Lack of snow in several ski areas had retarded activity in November and early December, but snowfalls just before Christmas improved business considerably. Ski resorts in Montana report strong holiday seasons that helped recovery from the slow start, although decreased traffic from Canada continues to hamper resorts near the border. One source reported that snowmobile rental companies at Bozeman, Mont., and near Yellowstone National Park were booked through March. Snowmobilers and skiers were traveling to the Upper Peninsula of Michigan and northern Wisconsin at slightly higher than year-earlier rates at the end of December and in early January. Tourist traffic to the Black Hills was steady in South Dakota.
Employment. prices and wages
With unemployment rates below 4.5 percent in Minnesota and the
Dakotas, Ninth District labor markets continue substantially better
than the national average. These three states contain over 80
percent of the Ninth District labor force. In November, employment
numbers in all district states stood 1 percent to 3 percent above
year-earlier levels.
Directors, industry sources and news media report virtually no upward price movements except for those grains where 1993 production was curtailed by flooding. In the last weeks of 1993, retail gasoline prices stood 5 to 7 cents below 1992 levels in Minneapolis- St. Paul and even sharper drops were reported in some other areas. District and branch directors report very limited wage increases for both private and public sector workers, in some cases limited to maintenance of health insurance coverage in the face of premium increases.