January 18, 1995
As 1995 opens, the economy of the Ninth District shows robust growth in most sectors. Manufacturing is very strong. Construction is active for the winter season, with commercial projects replacing residential buildings as the focus of strength. Iron mining expects its best year in over a decade and other metal mining faces favorable conditions. Forest product output remains high, with paper production continuing to gain strength. Modest recovery in depressed farm prices reportedly is fueling some increases in farm capital spending. Consumers are actively buying vehicles, and sales of general merchandise are generally good.
But not all is favorable. Winter tourist businesses are having a slow year so far, largely due to unfavorable weather rather than lack of demand. Residential building remains below year-earlier levels, and sales of existing housing have slackened.
Moreover, some problems associated with strong economic growth persist. Urban labor markets are very tight and may businesses have difficulty in securing employees. Businesses continue to report higher wage increases than were common in recent years. Reports of price increases in raw materials and intermediate goods are common and some such goods are increasingly difficult to secure.
Manufacturing
"Virtually all of our manufacturing customers are doing very well,"
reports a small business lending supervisor from a major Minneapolis
bank. "It is really a boom," he adds. Commercial printers and firms
manufacturing circuit boards, other electronic components, die
castings, building components and hardware are described as doing
particularly well across the district. A Japanese firm opened a
small engine plant in Wisconsin citing the current dollar-yen
exchange rate as a key factor. A major window manufacturer announced
plans for a new plant in Fargo, N. D. Two mainframe computer
manufacturers did announce layoffs, but these seem to result from
long-term changes in that industry and ongoing restructuring in the
particular companies involved rather than any overall weakness in
the economy.
Natural Resource Industries
"The taconite industry is on a roll," is how one newspaper described
iron mining in northeastern Minnesota. Production was about 42
million tons in 1994 and is expected to vault to 47.5 million tons
in 1995, the highest level in over 15 years. As an exception to
overall brightness in this sector, a Michigan mine announced a
layoff as part of a consolidation into one site. Copper and other
non-ferrous producers have not expended output to the extent that
iron mines have, since they had less slack capacity, but extremely
favorable prices are allowing these operations to replace old or
worn-out equipment.
Production of corrugated cardboard and other packaging as well as printing paper continues to increase. Output of other forest products, including lumber and building board, continues strong, and Montana timber employment and output have regained much of the ground lost when a major mill closed in 1993.
Construction and Real Estate
"Office glut lessens as businesses take up lots of space," is one
recent Minneapolis headline. "People have to build, there just isn't
any decent commercial space left," comments a suburban St. Paul
lender. Commercial projects clearly have passed up housing as the
locomotive for the construction sector. New warehouses, distribution
centers and other retail facilities are in particular demand.
"Retail is to the 1990s what office buildings were to the 1980s,"
comments one major national developer and builder based in
Minneapolis. Long lead times on new commercial buildings are
reported in some areas.
However, residential construction clearly has retreated from earlier highs in many areas of the Ninth District Single-family home permits issued in the Minneapolis-St Paul area were somewhat below year- earlier figures in October and November, and industry spokespersons indicate that the same will be true when the December numbers are available. A major home builder noted that actual slowing was less than originally anticipated and stated that business was still good. He cited increasing numbers of new home buyers opting for adjustable rate mortgages as the primary reason why residential housing activity has not slowed more than it has. This pattern, of some slowing from year-earlier levels, but of still maintaining good levels of activity reportedly is true in other urban areas of the district.
Markets for existing homes are cool, however. A Minnesota residential realtor describes sales of existing homes as depressed from levels that prevailed in the two previous winters. Existing home sales reportedly remain strong in rapidly growing urban areas such as Sioux Falls, S.D., and Billings, Mont., but have slowed slightly in other areas.
Agriculture
With crop production in its mid-winter dead season, Ninth District
farmers are focused on livestock production and on marketing the
1994 crop. Modest improvements in both crop and livestock prices
have reportedly improved producer outlooks for 1995, and a few
observers see increased farmer willingness to invest in new
machinery before the 1995 crop season. Unseasonably warm weather in
December raised fears that stored, unprocessed sugar beets might
spoil, but cold weather in early January has alleviated that threat
at least temporarily. Lack of snow cover in dairy areas is causing
concern about alfalfa survival.
Consumer Spending and Tourism
"The day after Christmas was phenomenal," according to a manager of
a Montana discount store. Holiday retail sales apparently were very
strong in Montana and the Dakotas. The Minneapolis-St Paul area
mimicked national patterns: Appliances and consumer electronics sold
briskly, but apparel sales were disappointing.
Consumers continue to go for new vehicles. North Dakota's registrations of new passenger vehicles for December were neatly 5 percent above the already healthy sales experienced a year earlier. Reports from registration agencies and dealers' associations in other states confirm this pattern.
Winter tourism activity was slow in parts of the Ninth District apparently due more to sparse snow cover than to weak demand. Officials in Michigan's Upper Peninsula and northwest Wisconsin report a 50 percent decline for December 1994, compared to the prior year. Business stayed even for December at a northern Minnesota ski resort, while snowmobiling dropped from year-earlier levels. Despite unfavorable exchange rates for Canadian skiers, a northwest Montana resort reports a slight increase this season.
Employment, Wages and Prices
Evidence of tight labor markets abounds. Help wanted signs are
posted in all sorts of establishments and classified advertising
sections are bulging. Even temporary agencies are scraping the
bottom of the labor barrel, the CEO of a computer manufacturer
reports, noting that over of half of the workers forwarded by
agencies fail a drug screening test, up from less than 8 percent a
year ago. Several executives of large Minnesota firms who
participated in an economic roundtable hosted by the Minneapolis Fed
cited increasing difficulty in securing needed workers and noted
that they were raising wages much more than in preceding years. And
a small Wisconsin firm that produces ribbon candy, a holiday season
specialty, was unable to do so because it could not secure the
needed temporary workers.
Both manufacturers and building contractors report price increases for materials they need. Some steel uses still experience delivery delays. Precast concrete panels also reportedly are in short supply, in spite of plants running seven-day a week, 24-hour schedules. However, prices of petroleum fuels continue to drop.