August 7, 1996
Moderate to strong economic growth continues in the Ninth District economy, with few adverse indicators. Once again, construction is a work horse across the district. Natural resource industries are also pulling, with oil development the strongest in a decade and iron mining straining to meet orders. Manufacturing appears quite strong, but with considerable variation across subsectors. Manufacturers report normal inventories. Crop conditions are generally very good, but hog and milk producers have cut output in the face of higher feed costs. Vehicle sales are reported as steady, and general merchandise retailers report satisfactory, but not spectacular, business. Wage increases are reportedly moderate and price increases scarce. Labor markets remain tight.
On the negative side, tourist business continues somewhat slower than projected. Beef producers face markedly adverse prices, and lenders expect some ranch business liquidations.
Construction and real estate
"Building permit activity up in Minnesota," headlined an article
describing residential construction in that state. The fact that
this would be equally true for nearly any other urban area of the
district highlights the importance of construction as a fountain of
strength in the Ninth District economy. Growing cities such as Sioux
Falls, S.D., Fargo and Grand Forks, N.D., Billings and Missoula,
Mont., and Eau Claire, Wis., all report strong residential, retail,
commercial and light industrial construction. Furthermore, at mid-
year publicly let contracts for public and heavy construction in
Minnesota and the Dakotas were 15 percent above 1995 levels, well on
their way to making 1996 a fourth consecutive year of record
spending in this category.
Sales of existing housing are also reportedly strong in most of the same areas. For example, new listings and pending sales at the Minneapolis-St. Paul multiple listing service were up 15 percent at mid-year over 1995, and the cumulative dollar volume of closed sales for the year was up over 25 percent. Similarly strong markets prevail in several other cities across the district.
Natural resource industries
"The level of activity in 1996 should double that generated in
1995," according to a North Dakota oil industry official. A mini-
boom is taking place in that state, largely the result of new
seismic and drilling technology which has boosted the success rate
to 87 percent of all wells drilled. Drilling is extending to several
counties that have not seen such activity for a decade.
Lake Superior iron mines are generally running full-out as they struggle to fill orders and catch up after a late opening of the shipping season earlier in the year. Other metal mining output is stable. Forest product output generally continues slightly above year-earlier levels. Output for the paper industry as a whole is below prior-year levels, but sales of some specific grades are reportedly strong.
Manufacturing and Technology
"We are having a good year, but no barn burner," reports a North
Dakota cabinet manufacturer. "Manufacturing growth off the chart,"
heads a newspaper article describing Eau Claire, Wis., where a
number of electronic component plants are under construction. Such
comments illustrate a manufacturing sector that on balance is quite
strong, but with considerable variation among subsectors.
Most producers of traditional items such as automobile components, consumer chemical products and furniture report a solid but unspectacular year. There are some exceptions, a North Dakota agricultural and construction equipment firm reportedly has a banner year, and a small wood molding firm in Michigan is expanding. But the strongest area apparently is high-tech products such as computer components, other electronic devices, and advanced plastic films. Many such firms report solid revenue increases or are building new plants. Other firms that integrate electronic equipment and computer software also report strong sales increases. Regardless of product, no manufacturers report delays in receiving raw materials, and their own inventories are generally reported as normal.
Agriculture
On the whole, crops across the Ninth District are in the best shape
of the last five years, though additional rain would be beneficial
in most areas, especially Montana. While most acres of major crops
are rated good or excellent, crop development still lags normal
stages in many areas. Barring extremely early frost, the district
should have normal yields for major crops. Machinery sales are
reported up from 1995 in some areas.
Hog and milk prices are somewhat higher than earlier in the year, largely in response to lower output prompted by high feed costs. Milk production in June was down 6 percent for Wisconsin and 1 percent for Minnesota from prior-year levels. But egg production was generally up, reaching a 9 percent increase for Minnesota in May over 1995 levels. Beef producers at all levels continue to face difficult conditions, with cow-calf operators bearing the brunt of the adjustment. Conversations with bankers and ranchers continue to point to widespread liquidations this fall. "I already have three years worth of business," remarked a South Dakota attorney specializing in farm bankruptcies.
Consumer spending
"Car sales are not real strong, but they are very steady," reports
one Montana dealer. "About average except for pickups which are
selling well in the oil areas and to some farmers," says a North
Dakota association representative. "New registrations are a few
percent above last year," according to a South Dakota official. This
theme pervades reports about vehicle sales, and carries over into
the general retail sector. "Business is steady, good," says one
Montana retailer. "We are a little above our plan," echoes a
representative of a regional department store chain. A national
chain based in Minnesota reports modest year-over-year increases m
its discount stores.
Several sources comment on the difficulty in distinguishing apparently sluggish sales increases in existing stores from the effects of major increases in retail capacity in the 1990s. Many sources indicate a fourth consecutive brisk building season for stores with new construction reported in virtually every town of 5,000 population or over. A more reliable indicator of retail activity may be sales taxes which, while lagged some months, are generally coming in above prior projections, and revenue officials expect this trend to persist.
Tourism
"Tourism continues to be down in the region," reports a Montana
banker. "The season is slow," comments a South Dakota official.
"It's finally getting better," comments a Wisconsin spokesperson. On
balance, tourism is below expectations, but about even with year-
earlier levels. Minnesota and Wisconsin officials describe brisker
activity than colleagues in Montana and the Dakotas. An adverse
Canadian dollar exchange rate, a late, cold spring and increased
gasoline prices are all cited as contributing factors.
Employment, wages and prices
"Highly skilled people are really tough to find," says a North
Dakota manufacturing CEO reprising a familiar theme in the Ninth
District. Unemployment rates remain well below national averages in
all areas of the district except the Upper Peninsula of Michigan,
and help wanted signs are omnipresent in most urban areas.
Employment growth has occurred across most sectors and help-wanted
ads range across manufacturing, retail and business services.
Most reported wage increases are at the low end of the wage scale. Moreover, some employers are extending fringe benefits to previously uncovered low-wage jobs. Most wage increases are modest, however. Few price increases are reported other than for milk at the farm and retail, and for grains and grain products. Gasoline prices have moderated slightly from spring highs, and breakfast cereal prices continue to fall despite rising grain prices.