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Economic activity in the Ninth District is mixed. Manufacturing, mining and agriculture are in the doldrums. Consumer spending is flat and housing construction continues to grow at a slow rate. However, the energy, tourism and commercial real estate sectors continue to expand at a solid pace. Labor markets are starting to loosen, but unemployment rates remain at historically low levels, and wage increases are moderate. Overall, price increases are temperate, but costs are heating up for energy, health care and housing.
Construction and Real Estate
Commercial construction activity is solid, but some signs of slowing exist. Building contracts awarded in the Dakotas and Minnesota increased 25 percent for the three-month period ending in December compared with the same period in 1999. According to a recent survey of architects and engineers in Minnesota, North Dakota and South Dakota, 82 percent expect their workloads to increase or stay at the same level in 2001 compared with 88 percent in last year's survey. The retail vacancy rate in the Minneapolis-St. Paul area finished 2000 at 5.1 percent, according to a commercial real estate firm, the lowest level in six years; however, office vacancy rates remain relatively high compared with the preceding four years. A director from southwestern Wisconsin and a contact from North Dakota report a recent increase in the number of contractors bidding on projects.
Growth in homebuilding remains slow. Housing units authorized were up 2 percent in the district for the three-month period ending in December compared with a year earlier. Nevertheless, Realtors in southwestern Wisconsin expect strong demand for homes at all price levels this year. Housing rental vacancy rates dropped to 1.5 percent in Minneapolis-St. Paul, while the apartment vacancy rate in Rochester, Minn., has recently dropped as low as 0.5 percent.
Consumer Spending and Tourism
Recent retail sales grew at a modest pace. Sales at a North Dakota mall were up 2 percent to 4 percent for January compared with last year, while sales increased about 2 percent at a Minneapolis area mall, according to mall managers. A Montana mall reports flat sales for January compared with last year. A major Minneapolis-based department store retailer noted that January same-store sales were up 2.1 percent compared with a year earlier, while a leather apparel store reported sales down 6 percent for the same period.
Businesses report solid winter tourism. Snowmobiling traffic on trails in central and northern Minnesota reached a four-year high, according to an official. A chamber of commerce representative reports more business at restaurants and lodges in northwestern Wisconsin compared with last year. Most tourism areas in the Upper Peninsula are having a good year, but not a great one, according to a tourism official. Bookings were up from a year earlier at a ski resort in Montana despite less-than-usual snowfall in the area.
Manufacturing activity continued to decrease. A January purchasing manager survey by Creighton University indicated slower manufacturing activity and weak new orders in Minnesota and in South Dakota. As evidence, a Minnesota medical device manufacturer plans to phase out a manufacturing facility, a computer component company cut production, a northern Minnesota cabinet producer reduced output due to weak demand and a wood mill stopped production of wood siding for two weeks. A Minnesota electronics maker slashed production due to weak demand. A window producer will shut down a South Dakota plant and consolidate operations outside the district. In addition, an Upper Peninsula manufacturing representative reports increased energy costs as the number one concern of manufacturers.
Mining and Energy
The energy sector continued to swell, while the mining industry continued to contract. District oil and natural gas exploration remained above year-ago levels as prices for these products continue at high levels. Meanwhile, mining production is decreasing due to softening demand, high electricity costs and low commodity prices. A Montana lead smelter plans to suspend operations for six months starting in April. A Montana aluminum smelter and a copper mine remain shut down due to high electricity prices. Several Minnesota iron ore mines continued to operate below capacity; however, one large iron ore mine ramped up to full production.
"Higher crop input costs will happen this spring with increased costs for rent, fuel, fertilizer, chemicals, repairs and seed," reported a South Dakota agricultural lender. Farmers' financial condition deteriorated, based on preliminary results of the Ninth District's first quarter (February 2001) survey of agricultural credit conditions. Loan repayments have soured, as a quarter of respondents reported below-average levels of loan repayments compared with 15 percent a quarter ago. In addition, farm income fell, as 47 percent of respondents reported below-average farm income compared with 36 percent last quarter.
Employment, Wages, and Prices
Reports of layoffs continue throughout the district. A Minneapolis-St. Paul based tool company laid off about 400 employees, while a single-propeller airplane manufacturer plans to lay off approximately 130 employees in Minnesota and North Dakota. A door and window manufacturer in northern Wisconsin gave 2,100 workers the option to work a 32-hour week or take a voluntary layoff until orders pick up. A computer company in South Dakota plans to cut 400 call center employees.
While labor markets show some signs of loosening, the district unemployment rate of 3.3 percent in December remains well below the historical average. According to a fourth quarter job survey by the state of Minnesota, job openings outnumbered unemployed persons by more than two to one in the Minneapolis-St. Paul area, with the highest demand in social services, health care, architecture and engineering. The director of a grocery store outlet in Sioux Falls, S.D., reported a larger pool of applicants than expected for 400 new positions. The number of active applicants for unemployment insurance benefits in Minnesota was about 14 percent higher in January compared with a year ago.
Wage increases were modest. In a December St. Cloud Area Quarterly Business Report survey, 30 percent of respondents in central Minnesota noted increases in employee compensation over the prior three months, which is down from 49 percent a year earlier. Only 26 percent of respondents to a survey of manufacturers in Minnesota, Wisconsin and the Dakotas report higher wages in January compared with 59 percent a year ago.
Price increases were noted in energy, health care and housing; however, overall price increases were moderate. Natural gas prices in February were more than double a year ago, but down 13 percent from a month ago. More than half of manufacturers recently surveyed in Montana claim they plan to make major changes due to higher energy costs. Health insurance costs are up over 15 percent compared with a year ago, according to a Montana bank director. In 2000 the average price of a new home reached $127,386 in Sioux Falls, S.D., up 7 percent compared with a year earlier. Overall price increases are moderate; 22 percent of respondents to a survey of manufacturers in Minnesota, Wisconsin and the Dakotas report higher product prices in January, down from 30 percent a year ago.