November 2, 1994
The Ninth District economy continues to gain momentum. Construction continues strong. Manufacturers report continued good sales. Banks and financial service firms report excellent profits. Natural resource industries face favorable prices, and many mines and building board plants are operating near capacity. The 1994 crop is a record one in many areas and livestock numbers remain high. Vehicle sales are still the strongest force pulling the retail sector, but general merchandise sales are also robust. Summer tourism was excellent in most areas and some observers anticipate an active winter season.
Employment remains higher than year-earlier levels in all parts of the district and continues to grow. Unemployment rates are generally lower, particularly in metropolitan areas and in some cases are at their lowest level in two decades. Some firms report difficulty in finding skilled employees and reports of wage pressures are more frequent than in mid summer. Prices increases for steel, paper, plastics and other manufacturing inputs are reported, but prices for agricultural commodities and petroleum have eased.
Construction and Manufacturing
Construction remains a robust sector across the district. In
Minneapolis-St. Paul, new residential permits for August were down
somewhat from year-earlier levels, but industry officials still
categorize building activity as strong. "Because 1993 was such a
fantastic year for the single-family residential construction
industry, 1994 has to work that much harder to beat it," said one
building association official. Builders in metropolitan areas of
North Dakota and South Dakota also continue to report strong
business.
Commercial and heavy construction is running ahead of 1993's hearty pace. Publicly let contracts in Minnesota and the Dakotas for September were 4 percent above 1993 levels. Contracts for the first three quarters of 1994 were 6 percent above year-earlier figures and 18 percent above 1992.
Employment numbers illustrate the strength of the two-year construction boom in the western part of the district. In North Dakota, South Dakota and Montana, August 1994 construction employment stood 11 percent, 16 percent and 19 percent, respectively, above the same month in 1992.
Manufacturers report good orders, particularly for farm machinery and components for the auto industry. Many publicly-traded manufacturing firms announced strong revenue increases over 1993. One Minnesota-based utility noted that electrical use by industry grew from August 1993 to August 1994, at twice the five-year average rate.
Banking and financial services
Banks reportedly face excellent business conditions. Two large,
publicly traded, Minneapolis-based banks announced record earnings
for the third quarter. Several bankers responding to a survey of
agricultural credit conditions also noted that their banks' earnings
were solid in spite of continuing financial stress for some farmers.
Two large insurance firms based in Minnesota also announced
favorable earnings. However one securities firm reportedly suffered
substantial losses in derivatives positions held earlier in 1994.
Natural resource industries
Favorable prices are spurring production in natural resource
industries. After a long period in the doldrums, paper producers
face strong demand for many grades, and sales volumes and prices
have both increased. Prices remain very favorable for most metals,
and mines are generally running at capacity. In August, Minnesota
mines employed 22 percent more workers than two years previously.
Oil and gas drilling rig counts have recovered from earlier in the
year and are about at year-earlier levels, though oil production in
the district continues to decline. Lumber and building board output
in Minnesota, Wisconsin and Michigan remains strong, in contrast to
South Dakota and Montana where cutting restrictions have sapped
production.
Agriculture
The 1994 harvest is excellent in all Ninth District states and is
setting records in many areas. Spring wheat production in Montana
nosed out the previous record set in 1993. Sugar yields are very
favorable in Minnesota and North Dakota. Record corn and soybean
harvests are expected in South Dakota, Minnesota and Wisconsin. Some
potato producers suffered losses from excess rain in early fall, but
yields are good overall as are those of edible beans.
Wheat prices have recovered somewhat from lows set in late summer, but corn prices have declined to the lowest level in three years. In spite of the bumper crop, comments from a Minneapolis Fed third quarter survey of farm bankers indicate that low crop prices will limit farm household and capital spending.
Livestock numbers remain very high and prices continued to erode into early October. Farmers are expected to cut output of hogs by mid-1995 in response to current low prices, but for now pork supplies are more than adequate and retail pork prices are expected to decline even further in the next two months.
Consumer spending and tourism
Vehicle sales continue as the locomotive pulling retail sales.
Pickup trucks are especially popular, September new registrations of
all trucks in Montana ran 32 percent above the same month in 1993.
New registrations of cars and light trucks in South Dakota for the
year through September were over 4 percent above year-earlier
figures. In Minnesota, the increase for the same period was nearly 5
percent.
Mall managers and a regional department store chain report good sales. Minneapolis-based national retailers announced very good sales for September, with the best results in mid-priced and discount stores but less satisfactory sales in traditional department stores. Directors from western areas of the district report very favorable conditions for retailers, but in Michigan's Upper Peninsula "sales are so-so."
However the summer tourist season in the Upper Peninsula is described as "excellent, and the fall and winter are expected to be very good also." Wisconsin tourism continues a strong year with seasonally high occupancy rates at resorts this fall. A Minnesota tourism industry association described 1994 as the best season in five years. Major attractions in South Dakota report double digit increases for September. Although Canadian traffic is slower, tourism numbers in Montana remain at last year's pace.
Employment, wages and prices
Labor market indicators sketch a robust economy in the Ninth
District. With the exception of Michigan's Upper Peninsula, August
unemployment rates in most metropolitan areas were at 4 percent or
less, with the dominant Minneapolis-St. Paul MSA at 2.9 percent.
Montana's 3.6 percent rate was the lowest in 24 years. Overall
employment numbers are 2.5 percent to 3.5 percent above year-earlier
levels. News media, directors and industry sources indicate that
some firms have difficulty securing enough workers with desired
skills.
Evidence of upward pressure on wages and prices is emerging. Directors and news media note that some employers have raised wages in attempts to secure needed workers in tightening labor markets. A major credit card processor in South Dakota announced a 6.7 percent increase in compensation for 2,100 non-managerial employees. A St. Paul commercial building contractor said that compensation costs for skilled building trades will increase by 8 percent or more for 1995. But directors continue to report some new labor agreements with modest wage increases. Moreover, a Minneapolis-St. Paul personnel managers association poll of its members projected pay increases of 4 percent in 1995.
Several sources report price increases. Steel prices for construction and manufacturing have risen by as much as 10 percent since January and some steel users anticipate further increases. Plastic laminates and particle board for cabinetry have increased by 8 percent. Other manufacturing inputs including plastics and non- ferrous metals also have increased in price. Prices of some grades of office paper have increased by over 20 percent. But petroleum costs have declined from mid-summer levels and all prices of virtually all agricultural commodities are below year-earlier levels.