Beige Book Report: Minneapolis
June 19, 1996
Economic growth in the Ninth District continues to quicken in late spring. Construction is strong in virtually all parts of the district. Natural resource industries, except for paper, are robust. Vehicle sales reportedly have improved from earlier in the year and general merchandise retailers report satisfactory business. Agricultural producers are generally optimistic in spite of late planting caused by adverse weather. Similarly, tourism got off to a late start due to cold, wet weather, but business owners and state tourism officials anticipate a good season. Manufacturing continues mixed, but on balance shows some invigoration. Except for products derived from grains or petroleum, there are few reports of price increases. Difficulty in securing needed workers is the most common complaint voiced in regard to labor markets.
Construction and real estate
"Home buyers find a lot to look at, housing prices up over 95's
market" is a Sioux Falls, S.D., newspaper's characterization of
residential real estate that could apply equally well to most other
urban areas of the district. Construction is up from year-earlier
levels and sales of new and existing homes are brisk in most areas.
New permit applications in Sioux Falls for the four months through
April were up some 75 percent from the same months in 1995. For the
Minneapolis-St. Paul metro area the increase was 25 percent in the
same period. Sales of new and existing housing are also lively in
western Montana, especially Missoula. A report from Bismarck, N. D.,
describes "commercial construction at a blistering pace." Contracts
for large projects continue to run slightly ahead of 1995 levels.
Natural resource industries
"More taconite, more jobs," was the headline of an article
describing one firm's plans to reopen a processing plant at a
Minnesota iron mine. Idled in 1980, the plant would add about 100
jobs and 1.3 million tons of annual output. "All seven Iron Range
taconite plants are turning out pellets at near record levels," the
article continues. In a similar vein, oil and gas drilling in North
Dakota and Montana continues well above 1995 levels.
In forest product industries, lumber mills and oriented-strand board plants are busy, but paper production continues down from a year ago and well below capacity.
Agriculture
"The outlook is good if the crop materializes," reports one North
Dakota banker responding to the Minneapolis Fed quarterly survey of
agricultural credit conditions. That view is shared in all states of
the district. Planting lagged two to four weeks behind long-term
averages, but moisture conditions are generally favorable except in
eastern North Dakota where many areas are too wet. While most crops
were planted in time to allow maturation before fall frosts, some
potential yield has been lost and weather conditions will need to be
ideal for the crop to be much above average.
Hog prices are higher than anticipated, shielding producers somewhat from the effects of sharply higher feed costs. Conditions for beef producers remain grim, and bankers report that they expect the number of ranch liquidations to rise perceptibly this year.
Interest rates on farm loans rose slightly in the second quarter, and bankers' expectations of loan repayment, farm income and capital spending continue to improve in most areas except where cattle ranching predominates.
Manufacturing
"Business is quite good, especially on exports," says a purchasing
manager at a large Minneapolis food processor. "I'd say things are a
little slow," reports the CEO of one N. D., manufacturing firm, "but
we expect it to pick up pretty soon." Such comments illustrate the
mixed conditions faced by Ninth District manufacturers. None report
delays in receiving raw materials or any other evidence of rapid
growth in their sector. Inventories are generally reported as
normal. Reports for publicly traded manufacturers generally show
good sales and earnings growth over year-earlier levels,
particularly for food processors and farm and construction machinery
manufacturers. On balance, indications of growth appear to
predominate, and those firms reporting slow sales now expect some
improvement in the next few months.
Consumer spending
"First quarter retail sales tax is coming in a bit above projections
and about 4 percent above last year," reports a North Dakota state
tax official. That seems typical of retail sales in many areas not
booming but up from a year ago and strengthening. Mall managers and
regional retailers report good business, though few use superlatives
in their descriptions. Auto sales are reportedly "stable" in
Montana, "pretty good" in Minnesota, and "still good" in South
Dakota. New vehicle registrations in these states are slightly ahead
of 1995 levels for the year to date, with most of the improvement in
April and May.
Tourism
"Tourist season off to damp start," headlined a description of slow
business for South Dakota tourism firms as snow fell at Mt. Rushmore
on the Memorial Day weekend. But in spite of a slow start, some are
optimistic. "We're looking for our best year ever, our reservations
are up about 20 percent above last year," said one park manager. The
situation seems very similar in the rest of district states, a late
start due to cold, wet weather, but optimism about the coming
season.
Employment, wages and prices
"Perhaps we should call them 'discouraged employers,"' said a
Minnesota state official describing the growing phenomenon of firms
that want to hire additional skilled workers, but stop advertising
because no candidates are forthcoming. Printers and computer-aided
design and manufacturing technicians were cited as in especially
short supply. One Minnesota firm offered a drawing for a free Las
Vegas vacation to employees who brought in a new hire. A Minnesota
economic development official said that labor availability has
displaced incentives, taxes and other business climate issues as the
primary concern of firms seeking to establish plants. This parallels
the dilemma that eastern South Dakota has faced for some time; it is
difficult to attract new industry when labor seems short.
"We have the person who posts price changes doing filing," says a Minnesota plumbing supply wholesaler who describes a few increases in copper and polyvinyl chloride pipe as offset by declines in prices of furnaces and other manufactured items. While fuel prices have received much attention, the average pump price for gasoline in the Minneapolis-St. Paul area at the end of May was only 6 percent above year-earlier levels. Grain prices remain at historic levels in nominal terms, and flour price increases now roughly parallel those of wheat after lagging somewhat earlier in the year. But there is little evidence of price pressure at the supermarket. Beef is frequently on sale and aggressive promotions of breakfast cereals and some other processed foods have helped minimize food price increases.