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The Ninth District economy is in the doldrums. Manufacturing, construction, mining and agriculture activities are down from a year ago. Consumer spending and tourism are flat. However, strong prices are helping the energy sector. Labor markets are easing and wage increases are moderating. Price increases are generally modest, although significant increases are reported in energy, health insurance, apartment rental rates and cattle hides.
Construction and Real Estate
Commercial construction is below last year's levels. Construction contracts awarded in Minnesota and the Dakotas decreased 4 percent for the three-month period ending in April compared with the same period last year. The downtown Minneapolis office market is slowing as tenants are planning to vacate leased space to occupy new buildings, according to a commercial real estate firm. In Billings, Mont., commercial real estate professionals noted that building during the beginning months of 2001 was on par with a year ago, but growth in construction is expected to finish the year lower. However, highway and heavy construction firms in northern Minnesota expect a busy summer.
Homebuilding is down from a year ago, while home sales are up. Housing units authorized dropped 15 percent in the district for the three-month period ending in April compared with a year earlier. City officials in Eau Claire, Wis., expect a lower number of single-family homes built in 2001 compared with last year. However, the value of home sales closed in April in the Minneapolis/St. Paul area increased 20 percent over a year ago, while the number of listings on the market was up 15 percent.
Consumer Spending and Tourism
Consumer spending is about level with a year ago. March retail sales in many South Dakota cities were down slightly from a year earlier. Sales in April and May at a mall in North Dakota are down 5 percent compared with a year ago. In contrast, a major Minneapolis-based department store retailer noted that April same-store sales were up 1 percent over a year earlier. A mall in La Crosse, Wis., reports sales up 5 percent year to date compared with last year. Sales tax receipts were up 13 percent for the first five months of 2001 compared with a year ago in Grand Forks, N.D. Auto sales are on par with a year ago in North Dakota, according to a bank director; however, new car and truck registrations are off about 20 percent in South Dakota for March and April from last year.
Summer tourism activity in many parts of the district is expected to finish level with a year ago. Montana tourism is predicted to increase between 2 percent and 3 percent this summer compared with last year, according to officials. Advance reservations and inquiries are about the same as last year in the Black Hills area of South Dakota. Summer bookings at resorts in northwest Wisconsin are level with a year ago, according to a resort association representative.
Manufacturing
Overall manufacturing activity is, on balance, down from the last report. A May purchasing manager survey by Creighton University indicated slow manufacturing activity in North Dakota, very weak new orders in Minnesota but growth in manufacturing activity in South Dakota. A light truck assembly plant in Minnesota shut down for three weeks due to a shortage of tires. A cereal plant in Minnesota is closing, and production will move out of the district. In Minnesota, a communications component manufacturer suspended plans for an expansion, while a manufacturer of medical devices reports steady sales. A lumber mill in western Wisconsin shut down for two weeks due to slow demand and high inventories. Industrial electrical usage for the first quarter of 2001 in the Upper Peninsula was about level with year-earlier amounts. However, a Minnesota plastic molding producer reports sales are picking up after a lower-than-normal first quarter. A South Dakota building material producer reported an 8 percent increase in sales over last year.
Mining and Energy
The energy sector continued to expand in recent months, while the mining industry contracted. District oil and natural gas exploration and production remain above last quarter levels. Meanwhile, iron ore shipments in March were 21 percent below year-ago levels, and many mines are planning to curtail production by closing for a few weeks this summer. In Montana, a copper mine and an aluminum smelter remain closed due to high electricity prices. However, a Montana platinum/palladium mine remains at full production.
Agriculture
According to a Minnesota agricultural lender, "In this area the weather has caused planting problems. The prices for crops are not at profitable levels, and futures prices do not look like things will improve. Rents are stable with land values increasing. Stress will continue in the farm sector, and the equity of farmers continues to fall." This is a typical response to the Ninth District's second-quarter (preliminary May 2001) survey of agricultural credit conditions. Farmers' financial condition is sub-par; lenders report 30 percent of their agricultural customers are at their debt limit. In addition, 44 percent of survey respondents report below-average farm income over the past three months.
Employment, Wages, and Prices
Companies are laying off workers; subsequently, labor markets show signs of loosening. A private university in Minnesota plans to eliminate 91 nonfaculty positions. A manufacturer of telecommunications components will cut 127 jobs in southwest Minnesota. A La Crosse shoe manufacturer will end operations in July, laying off 139 employees. The closing of a Bismarck, N.D., area telemarketing operation will result in 78 job losses. Initial claims for unemployment insurance in district states are up 55 percent for the four-week period ending May 19 compared with a year earlier.
An advisory council member from northwest Wisconsin reported that the area's labor shortage has eased from eight months ago. A representative from a temporary-staffing and placement firm that specializes in technical and computer positions in the Minneapolis area is receiving many more resumes from people who have been laid off.
In contrast, some industries continue to face tight labor markets, and a number of companies are hiring workers. In Minneapolis/St. Paul, 34 percent of companies surveyed by a major staffing company plan to hire more workers during the third quarter of 2001, while 9 percent expect to reduce staffing levels. This compares with 36 percent and 12 percent, respectively, a year ago.
Wage increases are modest, with manufacturing wages up 2.6 percent for the three-month period ending in April compared with a year earlier. A bank director reported that executive pay at a Minneapolis/St. Paul high-tech firm is down 10 percent from a year ago, while entry level jobs at most high-tech companies are seeing only 3 percent to 6 percent pay increases.
Overall price increases are modest, except for notable hikes in energy, health insurance, apartment rental rates and cattle hides. Higher gasoline prices are reported throughout the district, increasing costs for shipping and transportation. Health insurance costs are up 20 percent, according to bank directors. Average apartment rental rates in St. Paul are up about 15 percent in April from a year ago. Meanwhile, cattle hide costs for shoemaking are up 40 percent compared with last year.
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