March 8, 2000
Federal Reserve Districts
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As spring approaches, the Ninth District economy continues to look very strong. Construction, manufacturing and consumer spending remain robust, energy and iron mining are making a rebound, and even agriculture shows some signs of improvement. Of the major industries, only tourism exhibits little growth. The economic strength continues to be reflected in labor markets, which remain tight, and with businesses reporting some wage pressures. However, while input prices have been rising, there are still few signs of accelerating inflation.
Construction and Real Estate
Residential construction is also strong. Due to low vacancy rates, the outlook for Minneapolis/St. Paul apartment building is promising, according to a commercial real estate firm. Rental rates are up about 10 percent in the Minneapolis/St. Paul area compared to a year earlier. Home prices finished 1999 up 5 percent to 9 percent compared to a year earlier for several district cities, including a 9.3 percent climb in Minneapolis/St. Paul. District housing units authorized in 1999 finished with the second highest fourth quarter of the decade.
Tourism is expected to finish flat overall, with gains in areas with normal or above normal snowfall, and losses where snowfall came late in the season. A ski area in northern Montana reports excellent snow conditions and a 35 percent increase in business compared to last year. In contrast, tourism businesses in parts of Minnesota with light snow cover are concerned. Below normal snowfall in South Dakota has stifled winter sports. "We would have a lot more business if we had more snow," says a tourism official.
Mining and Energy
Meanwhile, Ninth District oil exploration has increased as oil prices have risen. In February, nine rigs were operating in North Dakota compared to one a year ago. In addition, estimated February oil production in North Dakota was up 5 percent from year-ago levels. However, in Montana only three rigs were operating compared to five a year ago and Montana oil production is down 9 percent from a year ago.
Looking ahead, a continued warm winter has farmers worried about lack of snow coverage for winter grains and a possible drought next summer as a result of dry soil conditions. Moreover, some ranchers tell of problems getting water to their animals, but the mild winter continues to reduce stress on livestock.
Employment, Wages, and Prices
Companies are still looking for workers. A telecommunications company based in Superior, Wis., will add more than 300 jobs by early March. A major electronics retailer based in Minneapolis/St. Paul recently announced plans to add 2,000 workers at its headquarters over the next five years.
Wages continue to creep higher. An informal survey of Upper Midwest businesses conducted in January reports that wages are generally about 2 percent to 4 percent higher than last year. A major Minneapolis/St. Paul-based airline increased the bonus pay to mechanics with specialized licenses by $1.50 an hour; custodians and cleaners received $500 bonuses. A Fargo, N.D., hospital is offering $4,000 signing bonuses for registered nurses.
While overall prices are not accelerating, input prices and transportation costs are increasing. Surveys of manufacturers show that input prices are higher compared to a year earlier. The Creighton University survey reports that an index of input prices for January in Minnesota and South Dakota is almost twice as high as a year ago. Through January, the Upper Midwest business survey reports that an average of 41 percent of respondents over the past five months have reported higher input prices compared to 22 percent for the first eight months of 1999. Rising oil prices have affected transportation costs, but businesses aren't showing noticeable concern.