At mid-year, moderate, broad-based economic growth continues in the Ninth District with a number of sectors improving from spring to summer. Construction is once again an engine of growth as strong non-residential activity more than compensates for any reduction in home building. Manufacturers, particularly of high-tech products, continue to report good business. Oil and gas leasing and drilling is at the highest level so far this decade, and oil production is increasing after several years of slow decline. Mines are busy, and the continued boom for paper producers counterbalances some slowing in lumber output. Banks and investment firms report good to record earnings. General merchandise sales are stable overall, with vehicles selling somewhat better than in the spring. Tourist business improved from spring into summer along with the weather. Employment continues to grow moderately and unemployment rates remain well below national averages. Wage increases are small and few price increases are apparent.
Agriculture remains a problem sector due to persistent low livestock prices and adverse weather. But crop prospects have improved substantially since mid-spring and the 1995 crop will likely be good, though well below 1994's record.
Real estate and construction
"It's tighter than a drum," is one senior agent's description of the
commercial and industrial real estate marker in the Minneapolis-St.
Paul metro area where vacancy rats are down to about 5 percent and
rents are reportedly rising sharply. This tight market is the fire
under the boiler for the 1995 construction season. Commercial and
industrial projects planned or underway for 1995 in Minneapolis-St.
Paul are the highest in 10 years and 40 percent above last year's
active pace. Publicly let government and private contracts through
June for the states of Minnesota, South Dakota and North Dakota are
3 percent above year-earlier levels.
This strength in non-residential construction is more than compensating for the slight slowing of residential work. As evidence, construction employment in Minneapolis-St. Paul is up 8 percent from a year ago. For Minnesota as a whole and for North and South Dakota, employment in the sector is up 1 percent to 2 percent in spite of some slowing of single-family home building in many areas. Some residential builders report strengthening sales of new homes in mid-summer and restored buyer confidence in the economy, although they do not expect a return to 1994's record levels.
"Our residential business has really picked up since mid-winter although it is still below 1993 and early 1994," says a Minnesota regional manager for a major realtor. And one major mortgage lender reports strong increases in new loan and refinance business in early summer, although competing firms claim little change.
Manufacturing
"This is a very good year for us, but our order book is not as full
as it was last fall," reports a Minneapolis manufacturer of
industrial equipment. That generally characterizes manufacturing in
much of the Minneapolis district. Industrial electrical demand in
late spring rose over 1994 by only slightly more than long-run
trend. Manufacturing employment grew similarly. But some sectors
continue to experience strong growth. Industry sources report that
small to medium high-tech firms have very good business.
Natural resource industries
Natural resource extraction is at its strongest level in this
decade. North Dakota oil production has increased about 7 percent
over year-earlier levels, the first uptick in a decade, and oil
leasing is reportedly very active in northeastern Montana. Copper
producers are generally running full out in response to near-record
prices. The iron mining season is the strongest in at least three
years in terms of output and employment.
Lumber mills have been whipsawed by gyrations in lumber prices, but output remains generally stable. For loggers, any decreases in work for sawmills is being offset by pulpwood cutting for paper mills. Paper producers continue as capacity and pulp and paper prices are at record levels.
Agriculture
The mood among farmers brightened considerably from late spring into
mid-summer as fears of a crop failure diminished with more favorable
weather. Progress of all major crops continues to lag five-year
average as a result of late planting, but the lag has diminished,
particularly for corn and soybeans. Certain regions, particularly
eastern North Dakota and east-central South Dakota, which were
particularly hard hit by excess rain in the spring are likely to
have short crops. But conditions are more favorable in Minnesota,
Wisconsin and Montana. Grain prices, especially wheat, are up in
response to low carryover and poor crop prospects.
In contrast to the improved situation for crops, livestock production continues to have severe problems. Cattle and hog prices remain depressed and the recent runup in grain costs is further squeezing producers. Periods of extreme heat in mid-July slowed livestock gains and caused severe death losses for district turkey producers.
Banking and finance
"All appear headed for another year of record earnings," is one
Minnesota newspaper's description of performance at major Minnesota-
based banking, finance and investment companies. Strong profits
generally characterize banks of all sizes across the district. Small
agricultural banks in livestock-dependent areas are an exception;
their managers expressed concerns about loan losses and
profitability in a survey of agricultural credit conditions.
Consumer spending and tourism
"We are having to work harder and harder to keep sales up to
projections," says the CEO of a chain of appliance and electronics
stores. Other retailers agree that they have increased expenditures
on advertising, specials and promotions in efforts to maintain
sales. In midsummer, general merchandise sales show only modest
increases over year-earlier levels. Discount chains and lower-price
mass merchandisers generally report better results than do
traditional department and full-price specialty stores. In spite of
this slowing, new retail construction is underway in eastern
Montana, North and South Dakota and urban areas of Minnesota.
Automobile sales numbers remain slightly below 1994 levels, but the gap closed somewhat in early summer according to new registration data. Dealer association representatives also report improved dealership traffic and buyer interest in many areas.
As the weather improved from mid-spring to mid-summer, so did tourist business in many areas, although the 1995 season is not expected to set any records. Sources in Montana report mixed conditions, with higher-altitude areas such as Glacier National Park suffering from cold, wet conditions well into July. But western South Dakota destinations report improvement. Camps and lake resorts in northern Minnesota, Wisconsin and the Upper Peninsula of Michigan had good business in July as urbanites fled extreme heat.
Employment, wages and prices
While the pace of employment growth is slightly lower than a year
ago, it is still positive and in the range of 1 percent to 2.3
percent over year-earlier levels. Unemployment rates remain well
below national averages. Firms continue to report difficulty in
securing both skilled and entry level workers.
Reports on wages and prices are mixed. Pressure to raise entry-level wages clearly continues. One South Dakota grocery distributor had to raise hourly starting wages for data entry and warehouse workers from $5 to $7 in order to fill jobs. But wage contract settlements at many firms continue to be in the 1 percent to 3 percent range.
Once again paper is the most visible culprit in product prices. Prices of many printing and packaging grades are at historic levels. Copper, brass and aluminum are also more expensive and, in some cases, on backorder. Lumber prices have been volatile but generally well below a year ago. Gasoline and diesel prices were several cents above 1994 levels, but this spread has diminished in recent weeks.