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August 5, 1998
Federal Reserve Districts
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Growth continues to predominate in most sectors of the Ninth District economy. But ill winds, especially from Asia, are increasingly retarding the pace of growth. General retailing, autos, tourism and construction are strong. Real estate markets are very active in both residential and commercial categories. Unemployment rates remain very low, and labor markets show continuing symptoms of tightness. Manufacturing output, while still high overall, is beginning to slacken, especially in those products or firms with substantial Asian exposure. Manufacturing exports are down on a year-over-year basis. The natural resource sectors, particularly agriculture, mining and energy development, face low prices, and drilling and mining activity is faltering. Reports of upward pressure on overall compensation are widespread, despite data showing only moderate increases in direct, cash compensation.
Real Estate and Construction Construction is similarly booming. Residential building permits for the Minneapolis-St. Paul area were up 38 percent in June and 22 percent for the year, again compared to the same periods in 1997. In growing regional centers such as Rochester, Minn., Sioux Falls, S.D., Eau Claire Wis., and in the Minneapolis-St. Paul metropolitan area, strong residential building is matched by robust commercial work. The downtown areas of both Minneapolis and St. Paul show the fastest pace of large office building projects in a decade. Public and private heavy construction reportedly is up 5 percent to 11 percent in Minnesota and the Dakotas through May, compared to 1997, marking a sixth consecutive season of strong growth.
Manufacturing Nevertheless, many other manufacturers report good sales, and manufacturing employment grew through June--in Minnesota it was some 2 percent above a year ago. And a computer component manufacturer announced planned expansions for the Eau Claire area that will add more than 1,000 employees over the next two years. Moreover, publicly traded firms that are not dependent on trade with Asia continue to report generally strong revenue growth.
Agriculture Prices rather than crop conditions are the main concern. Wheat growers are under the greatest pressure in terms of output price relative to costs, but corn and soybean prices have also fallen to a point where many producers will find it difficult to pay all costs. Farm bankers report that increasing proportions of customers have reached debt limits. Many bankers require higher levels of collateral than a year ago. Farm implement dealers report extremely slow sales. Returns to hog raising improved somewhat in late spring, but remain unfavorable. Many cattle feeders lost money on animals fed over the past winter and spring, but may face somewhat more profitable feeder cattle and feed prices for animals put on feed this year. One area of concern is adequacy of transportation and storage facilities for the new crop. Much on-farm and commercial storage remains tied up with the 1997 crop. Principal railroads have warned that they may not be able to move as much grain as elevators think necessary to accommodate the new crop. Work on improvised storage facilities has begun in many areas.
Energy and Mining
Consumer Spending and Tourism General consumer spending continues robust across many product lines. National and regional chains based in the district report strong sales. Mall managers describe good traffic; one comments that successful movies this year are helping business by bringing large crowds into her mall. After a long period of sluggishness, prospects of the tourist sector are positive. Summer tourism showed strong growth for June and July compared to a year earlier. According to a chamber of commerce in northern Wisconsin, tourism businesses are reporting strong sales. A tourism office in Duluth, Minn., reports about a 9 percent increase for the area. In South Dakota, attendance at Badlands and Mount Rushmore parks is up 53 percent and 16 percent respectively for June compared to a year earlier, while motel occupancy for June is up 6 percent. "All reports that we've been hearing are good," says an official in Montana where visits to Glacier and Yellowstone parks were up 22 percent and 7 percent respectively in June compared to 1997.
Employment, Wages and Prices Prices for consumer goods as well as commodities and intermediate goods show little increase. Low gasoline prices and low prices for crop and livestock products are undoubtedly helping to hold down the general price level, but manufacturers and retailers continue to report difficulty in making any price increase stick in a competitive environment.
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