March 13, 1996
Overall, economic activity in the Ninth District economy remains moderate, but there is widespread feeling among businesspeople that the pace of growth is slowing. On one side of the coin, construction continues strong and builders expect another active season. Rising grain prices have generally increased optimism in the agricultural sector, in spite of the squeeze that such prices put on ranchers and on farmers who raise livestock as well as grain. Tourist businesses in eastern areas of the district report good activity, but Montana and the Dakotas have had a disappointing season. Metal mining output remains strong, but some profit margins are eroding as prices for nonferrous and precious metals soften. Labor markets remain tight and unemployment rates low, but there are few reports of wage or price pressures.
On the other side of the coin, manufacturers continue to report slackening orders. Retailers are experiencing sluggish sales of a wide range of durable and nondurable goods. With the exception of a few areas, auto dealers describe sales as slow. There are increasing reports of paper mills cutting production. Agricultural bankers in towns where cattle ranching predominates express alarm about the degree of price declines for feeder cattle and expect that some ranchers will choose or be forced to liquidate their operations.
Construction
"It's just like the Energizer bunny, it just keeps going and going,"
is how one South Dakota builder's spokesman describes residential
and commercial building in his area. That characterization is valid
for nearly all of the Minneapolis district as construction
approaches a fourth consecutive strong season. Residential building
demand, which had slackened somewhat in the Minneapolis-St. Paul
area in mid-1995, appears to be regaining strength, reportedly in
response to lower mortgage interest rates. Sioux Falls, S. D., and
Missoula, Mont., anticipate a booming construction season in 1996.
Fargo and Grand Forks, N.D., also expect a high level of residential
building, although perhaps somewhat down from the fevered pace of
1994 and 1995. Dickinson, in western North Dakota, has near-zero
available housing as a result of oilfield activity and expects its
strongest construction season in years. "Motel construction booms"
is the headline in a Rapid City, S. D., newspaper, and Montana
sources report that "big box" store building continues despite slow
retail sales. Large, publicly let contracts apparently are about
level with last year.
Natural resource industries
Ninth District iron mines shipped 47 million metric tons in 1995,
the highest level in over a decade, and expect a strong year in
1996. Increasing amounts of taconite pellets are being shipped by
rail, reducing the usual winter slowing. Nonferrous mine output is
stable in spite of copper prices some 15 percent below year-ago
levels and recent slight drops in gold prices. Oil and gas
exploration remains active through the winter. Paper mills are
slowing output and discounting output prices. Little change is
reported in lumber and building board production.
Agriculture
Record corn prices and much higher wheat prices have brought greater
optimism to crop farmers, according to a mid-February survey of
agricultural bankers. The mood in grain producing areas is
reportedly the most optimistic in more than a decade. Seed corn
sales are hitting records, and orders for other inputs such as
fertilizers and pesticides are strong. There is some increase in
demand for tractors and implements, and good used equipment is
reportedly selling well. Uncertainty about federal farm legislation
continues, but several sources note that most farmers expect passage
of some version of the "Freedom to Farm Act" and no annual acreage
set asides or planting restrictions in the next few years.
However, this optimism on the crop side is at least partially offset by depressed livestock prices. The problems of livestock producers have been exacerbated by rising grain prices; the hog-to-corn and cattle-to-corn price ratios are at their most unfavorable levels in decades. Cow-calf producers are the end of the whip that is being cracked, as higher feed costs drive down prices for feeder cattle. Western South Dakota and ranching areas of Montana are particularly hard hit. Bankers and ranchers in these areas expect the level of voluntary and forced liquidations to rise dramatically in 1996.
As the winter ends, winter wheat conditions in Montana and South Dakota are generally good, and soil moisture levels in most areas are excellent. A few areas in the eastern Dakotas continue to suffer from excess moisture and localized flooding.
Manufacturing
"Orders have been lagging in the first six weeks of 1996, and we
expect to turn out less product this year than last," says the owner
of a North Dakota manufacturing firm. His sentiments are echoed by
the CEO of a Minnesota manufacturer of industrial painting and
lubrication equipment. "Business is soft and getting softer," he
says. Other sources report that business is still good for medical
equipment and computer component manufacturers, but orders are
slowing. These reports and other indicators, such as industrial
electricity use, generally point to significant slowing in
manufacturing. One exception seems to be the printing industry.
Consumer Spending
"People seem to have a wait-and-see attitude," a Montana retailer
reported in mid-February. Her view is corroborated by lackluster
sales reports from large retail chains. "Traffic is OK but not
great," says a South Dakota mall manager. A Minnesota department
store manager notes that small items are selling normally but that
buyers seem reluctant to move on washers, refrigerators and other
big ticket items.
Automobile sales are similarly slack in most areas. A western Montana dealer reports that 1995 sales were down 12 percent from 1994 and that "our outlook for 1996 is very cautious." Some areas report better sales; oil and wheat producing areas of North Dakota and Montana seem to have stronger-than-average vehicle sales. A Minneapolis-St. Paul dealer, however, describes business as "so-so." On balance, consumer buying seems to be quite slow.
Tourism
Many ski resorts in northwest Montana are having a slow season due
to an unfavorable Canadian exchange rate and poor snow conditions,
according to a resort executive. The government shutdown hampered
visitations to national parks and monuments in South Dakota. A ski
resort in northern Minnesota reports level sales compared to last
year and looks forward to a strong March. Good snow conditions in
northern Wisconsin have boosted snowmobiling and cross-country
skiing for January and February compared to a year earlier.
Employment, wages and prices
"The shortage of labor has driven up wages a bit," comments a
building union official from western Wisconsin. "Our area has been
phenomenal in the last two years and there is a shortage of
qualified labor." A North Dakota business owner reports "the labor
shortage is an ongoing battle." Unemployment rates remain well below
national averages. Opinion is divided on which types of labor are
scarcest. There are many reports of difficulty in filling entry
level positions, and "Help wanted" signs remain ubiquitous, but one
manufacturer says, "White collar help is harder to get than assembly
line." Reported wage increases continue in the 2 percent to 4
percent range.
Many Ninth District commodities, including copper, paper, lumber and livestock, have decreased in price. Grains are the strong exception. Because slaughter livestock prices continue low, there is little evidence that sharp increases in grain prices have had effects at the consumer level. But some voices of concern are heard. "I just can't believe the press isn't following these grain prices," says a commodity analyst for a major Minnesota food manufacturer. "We potentially face a supply situation much worse than 1973-74."