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The Ninth District economy continues to grow at a moderate pace. The growth for consumer spending remains slower, as well as for the construction, tourism and manufacturing industries. Meanwhile, energy and mining activity continues at a strong rate. Although some signs of weakness persist, most district farmers are having a good harvest and the expected government aid is larger than last year. Labor markets are still tight as businesses struggle to attract and retain workers. Overall price increases are moderate, but significant increases were noted for energy and employee benefits.
Construction and Real Estate
The pace of commercial construction is slowing. Building contracts awarded in the Dakotas and Minnesota decreased 2 percent for the three-month period ending in August compared with the same period last year. A Minnesota contractor said that building activity is level with a year earlier and that dry weather this fall has helped some construction projects finish ahead of schedule. In contrast, September construction permits in Rochester, Minn., were the second highest month in city history.
Homebuilding remains soft. Housing units authorized are down 10 percent in the district for the three-month period ending in August compared with a year earlier. A building official near Butte, Mont., reports slow home construction compared with a year ago, and a Minneapolis-St. Paul area mortgage consultant reports that mortgage activity has dropped compared with a year earlier.
Consumer Spending and Tourism
Growth in consumer spending has decreased from the rapid pace earlier this year. A major Minneapolis-based department store retailer noted that September same-store sales were up 2.9 percent compared with a year ago. A Minneapolis-area mall manager reported that storeowners considered recent sales soft. Same-store sales at a North Dakota mall were down 7 percent in August and September compared with last year.
Late summer tourism finished down in several parts of the district, while the number of fall travelers is on par with a year ago. Tourism at many areas of the Black Hills of South Dakota this summer was down 10 percent compared with last year, while visits to Glacier and Yellowstone national parks in Montana were down 8 percent and 14 percent respectively in August compared with last year. The number of travelers to northern Wisconsin this fall is about the same as last year, according to a Chamber of Commerce representative, and the number of visitors to the Duluth, Minn., area was up about 6 percent during September compared with a year ago, according to a tourism official.
Overall manufacturing activity in the district increased, but some industries showed signs of weakness. A September purchasing manager survey by Creighton University indicated strong manufacturing activity in Minnesota and in the Dakotas. As evidence, a computer component firm with plants in South Dakota, Minnesota and western Wisconsin reported that demand has begun to grow after several quarters of decline. A North Dakota construction equipment maker increased sales from a year earlier due to increased foreign demand. In addition, in Michigan's Upper Peninsula, an automobile and tractor component producer plans to double capacity due to strong demand. A recent St. Cloud State University Quarterly Business Report survey indicated that central Minnesota manufacturers increased the workweek from the previous quarter. However, a fiberboard plant in Montana closed due to higher electricity costs. Higher costs and lower prices caused a Minnesota lumber mill to temporarily shut down. Several paper plants in Minnesota, Wisconsin and Michigan have reduced employment and production.
Mining and Energy
The palladium, iron ore and petroleum industries continue to operate at, or near, capacity. Palladium production is at full capacity. In July iron ore consumption was 7 percent above year-ago levels and inventory levels were down 11 percent from a year earlier. District iron ore shipments in August were up 10 percent from a year earlier, and an iron ore industry spokesperson reported that the mines are at full production. However, due to increased costs, lower quality ore and low gold prices, a South Dakota gold mine will close. Meanwhile, district oil exploration and production continue at a strong pace in response to high petroleum prices.
The robust harvest across the Ninth District is almost complete. The U.S. Department of Agriculture forecasts an above-average corn and soybean harvest for most district states. However, due to lack of moisture, the progress of the Montana winter wheat crop is significantly below the five-year average, and hay production in 2000 is expected to be about half of the 1999 production. Farmers and ranchers are also encountering higher expenses for interest, labor and fuels. However, Congress has enacted emergency legislation to soften these impacts by adding an infusion of government assistance that is likely to surpass 1999 payments by $2.7 billion nationally, according to the U.S. Department of Agriculture.
Employment, Wages, and Prices
Employers still have difficulty filling positions. A Chamber of Commerce survey of businesses in Duluth, Minn., found widespread concerns over worker availability. A task force in Montana found that the state could face a shortfall of between 100 and 300 teachers next year. In Minnesota, about 1,700 nursing jobs are unfilled. In addition, a new door manufacturing plant in northern Wisconsin will create 300 jobs and a telemarketing firm in Bismarck, N.D., plans to hire 50 more workers.
Labor markets remain tight despite layoffs reported by some district companies; most are due to restructuring. A paper company is eliminating 700 jobs in Wisconsin and Minnesota, a Minneapolis area-based direct-marketer is cutting 550 workers, and a Minnesota health care product company plans to eliminate 260 jobs.
Wages continue to rise at a moderate pace. The September St. Cloud State University business survey reveals that 54 percent of respondents expect higher employee compensation at their companies over the next six months. Employees in the lower-wage range are quick to change jobs for modest pay increases, according to a member of the Minneapolis Fed's advisory council on small business, agriculture and labor from Eau Claire, Wis.
Large price increases are reported in energy and employee benefits, while overall price increases remain modest. A Minnesota-based utility said that its natural gas customers could face heating bills that are 35 percent to 50 percent higher than last winter, while Montana Power Co. is seeking a 12 percent increase in electric rates and a 9 percent increase in natural gas rates. Health insurance rates for St. Paul public school teachers are up about 15 percent over last year. Regarding overall price increases, the St. Cloud State University survey shows that 63 percent of respondents reported no change or a decrease in prices received for their products in September compared with three months ago, up from 56 percent of respondents in the June survey.