May 3, 2000 Federal Reserve Districts Ninth District - Minneapolis

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Economic activity in the Ninth District continues at a robust pace. Construction, manufacturing, energy, and iron and palladium mining industries keep on invigorating the economy. Consumer spending is still strong and agriculture continues to climb out of its deep slump. Due to light snowfall, winter tourism finished down, but the outlook for summer tourism is bright. Labor markets are still tight as businesses report wage pressures. Consumer inflation remains stable, although some price increases were noted, primarily in petroleum-related products. Construction and Real Estate Commercial construction activity is hardy. Contracts awarded for construction projects increased 17 percent in Minnesota and the Dakotas for the three-month period ending in February compared with a year earlier. In addition, loan demand for commercial real estate is strong in Montana, reports a bank director. Residential construction also is sturdy as building permits and home values continue to rise. During the first quarter of 2000, 18 percent more district housing permits were authorized than a year earlier. Despite higher interest rates, building activity remains brisk in the Upper Peninsula of Michigan, according to a homebuilder association board member. In addition, recent valuations on property in the Rochester, Minn., area are expected to show a 10 percent to 15 percent increase from a year ago. Consumer Spending Spending at retail stores continues at a vigorous pace. Recent sales at two Minneapolis area malls were up 7 percent to 10 percent over a year ago. A major electronics retailer reports that Minnesota and North Dakota year-to-date March same-store sales were up 8 percent compared with a year ago, and South Dakota year-to-date March same-store sales were up 12 percent. New car and truck sales in North Dakota for March were 5 percent above a year earlier. An auto dealer association representative in South Dakota reports strong sales overall during first quarter compared with last year, but softer sales at dealerships in rural areas. Meanwhile, winter tourism finished down due to abnormally light snowfall. The winter season was off 10 percent to 15 percent compared with last year in the Upper Peninsula of Michigan. Hotel occupancy in northern Wisconsin was below last year's levels for February and March, according to a chamber of commerce representative. On a positive note, inquiries about summer activities were at or above year-earlier levels at tourism offices. Manufacturing Manufacturing in the Ninth District remains robust. A March purchasing manager survey by Creighton University indicates a strong manufacturing sector in Minnesota, North Dakota and South Dakota. For example, sales doubled compared with a year ago at a Minnesota microelectronics equipment manufacturer, and sales increased 16 percent over last year at an industrial machinery and equipment company. In addition, a Wisconsin concrete producer noted increased sales and a plastic products company reported a plant expansion in western Wisconsin. However, a computer component company shut down its photo etching operations in Wisconsin due to soft demand for disk drives. Mining and Energy The iron ore and palladium industries are at full production, while Montana gold mining continues to struggle. An iron ore industry spokesperson reports full production and strong demand. February year-to-date iron ore shipments were 78 percent above year-ago levels, while January inventory levels were down 15 percent. A Montana mining industry spokesman reports palladium production "continues at full speed ahead," while gold mining is still plagued by low prices and environmental issues. Meanwhile, Ninth District oil exploration and production continue at a strong pace. In April, 13 rigs were operating in North Dakota compared with one a year ago and estimated April oil production in North Dakota was up 1 percent from a year ago at 92,000 barrels per day. In addition, Montana rig operation increased to six compared with four a year ago, and Montana oil production is up 6 percent from a year ago at 47, 000 barrels per day. Agriculture A mild winter has benefited district cattle producers. Ranchers report healthy livestock and generally good calving conditions across nearly the entire district. The U.S. Department of Agriculture reports that calving is almost complete, and most calves and cows are in good to excellent condition. Meanwhile, most district farmers need rain. The U.S. Department of Agriculture reports that topsoil moisture conditions are rated as short or very short for 59 percent of Montana, 42 percent of Minnesota, 26 percent of South Dakota and 26 percent of North Dakota. However, the Montana Agricultural Statistics Service reports that 51 percent of the Montana winter wheat crop is in good to excellent condition. Employment, Wages, and Prices Finding workers is difficult. Due to a lack of available workers locally, a major Minneapolis/St. Paul-based discount retailer is expanding its credit operations center in another state after initially planning to stay in Minnesota. A small seed producer in North Dakota is operating 10 hours a day, but would stay open 24 hours if the labor became available. Potential relief was noted by a manager at a company in St. Cloud, Minn., who is optimistic that the labor pool may expand due to a repeal of restrictions on the amount older workers can earn before reducing Social Security benefits. Even though labor markets remain tight, some layoffs were reported. A computer disk drive manufacturer will cut 950 jobs due to soft demand, a printing plant closing in St. Paul will cost 550 jobs, and a major Minneapolis-based food company will release 270 workers due to restructuring. Businesses continue to increase wages to attract workers. District manufacturing wages are up 3 percent compared with a year earlier. An economic development official in Sioux Falls, S.D., noted wage pressure for unskilled positions, including signing bonuses at fast food restaurants. Nurses at a Missoula, Mont., hospital will receive an 8 percent raise next year. Inflation is generally stable, with some notable exceptions, especially increases in petroleum and health care. Bank directors report additional fuel surcharges for transportation and heating services. Trucking rates are up 9 percent from a year ago, according to a Minnesota Trucking Association spokesperson. Health care costs in Minnesota increased 10 percent to 12 percent from year-earlier levels, reports a bank director. In addition, the St. Cloud Area Business Outlook Survey shows that 34 percent of area firms expect to increase prices over the next six months, the highest level since the survey began in December 1998. Return to top St. Louis Kansas City