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In late fall, blue economic skies prevail in the Ninth District as moderate-to-strong growth continues in most sectors. September vehicle sales were markedly strong, and some indicators point to favorable overall retail sales in a very competitive sector. Construction remains an economic workhorse with stamina in all district states. The 1996 crop is turning out well, despite localized harvest difficulties due to wet weather. Natural resource industries follow the same pattern as earlier in the year: strong oil exploration and drilling, strong iron ore production and stable output in most forest products. Manufacturers report good, but not exceptional, business.
Very tight labor markets are producing increasing reports of wage hikes, and form a drag on possible output for some firms. But few price pressures for goods are evident at any level. Tourism continues somewhat slow, especially in the Dakotas and Montana.
Construction and Real Eestate
"Business has been good so long that we don't think of it as a boom anymore," comments a St. Paul, Minn., light commercial contractor. Indeed, while strength in the construction sector attracts little attention in its fourth consecutive year of growth, Minnesota's September construction employment was 3 percent and August housing permits about 8 percent above year-earlier levels. "We are trying to get several projects out of the ground before it gets cold," says the manager at a large Minneapolis commercial project. "We can always lay block in the winter and if we get this foundation work done we can keep busy for a long time." Western Wisconsin, southeast South Dakota, western Montana and eastern North Dakota also continue to enjoy brisk construction activity. Localized shortages of Portland cement are one indication of the brisk pace of construction. St. Cloud, Minn., concrete suppliers were rationing supplies in September.
Through September, highway and other publicly let infrastructure construction continues brisk in Wisconsin, Minnesota, and the Dakotas, but in Montana has dropped a bit from 1995 levels.
Natural Resource Industries
"We are producing just about as much as we can," remarks a representative of a Michigan iron mining firm. The same is true for mines in Minnesota, where the highest tonnage in two decades may be shipped if severe cold does not set in early. Oil exploration and drilling continue apace in North Dakota.
In contrast to iron mining and oil, forest product output is best described as steady. Lumber production through late summer is down in Montana from 1995 levels. Oriented-strand board production in eastern district states through September reportedly is modestly above a year ago. The paper industry appears to have stabilized after sharp price and order drops over the last year, but output remains below capacity.
Manufacturing and Technology
"Business is pretty good," reports a spokesperson for a Minnesota die casting firm. "We have plenty of work," is the word from an electronics component assembler in South Dakota. On the whole, manufacturers report good business conditions, but perhaps somewhat slower growth than the rest of the regional economy. In Minnesota, September manufacturing employment was 0.5 percent above September 1995, while overall employment was up about 2 percent. Manufacturing growth appears somewhat stronger around Eau Claire, Wis., Fargo, N.D., and Sioux Falls, S.D. A poll of manufacturers in Michigan's Upper Peninsula indicated that a majority anticipate increased investment and sales in the next year, but few expect to increase employment.
Agriculture
Crop producers have largely dodged the early frost bullet, and most crops have reached maturity. The harvest of wheat and other small grains is nearly complete, with generally good yields, comparable to five-year averages, but not setting new records. Some soybeans and much corn remains to be harvested, with work in some areas slowed by wet weather. Prices have dropped sharply from spring highs, but remain well above year-earlier prices for corn and soybeans, somewhat less so for wheat.
Cattle and hog slaughter prices are slightly higher than in early summer, and the situation for cattle producers, while still bad, is not as grim as many had anticipated in late spring. Higher than usual proportions of cull cows in total cattle slaughter indicates that needed adjustments in the beef sector are taking place. Milk prices are up sharply in response to reduced output from higher feed costs.
Bankers responding to the Minneapolis Fed's third quarter survey of credit conditions indicate that farm income and spending has generally increased from earlier in the year, except in Montana. Bankers also report that Minnesota, North Dakota, and eastern South Dakota farmers are increasing their machinery purchases compared to the previous three years. Repayment rates have improved, and interest rates are unchanged from early summer.
Consumer Spending
"September was the best month we have had in 23 years," reports an auto dealer from western Montana. In Minnesota, sales and excise tax receipts from vehicles for September ran 10 percent above projections. Moreover, reports from other dealers, association representatives and state registration officials indicate that early fall auto sales were strong across the district.
For general merchandise, separating same-store performance and manager perceptions in general retailing from overall consumer spending continues difficult in a sector that has experienced major additions to capacity in recent years. Many retailers report business only slightly stronger in early fall than in prior periods, but nonvehicle sales tax revenues generally indicate more strength than individual firms' sales figures.
Tourism
"Tourism is mixed," reports a Michigan state official, who could be speaking for the entire Ninth District. On the whole, the season has been somewhat slow, but not disastrous. Montana officials note adverse publicity about wildfires, increased gasoline prices and competition from the Atlanta Olympics as reasons for a slow year. The wet, cold weather prevailing well into spring hurt Minnesota, Wisconsin and Michigan businesses, and while the pace reportedly picked up in the summer and early fall, improvements were not enough to make up for early losses. "We are hoping for a good winter skiing and snowmobiling season," remarks one banker from Michigan's Upper Peninsula, where tourist spending is important.
Employment, Wages, and Prices
Labor markets in many areas of the district have tightened to the point where they constitute a constraint to increased output for some firms. A recent newspaper article described one fast-food outlet that repeatedly has closed either its dining room or its drive-up window due to lack of workers. Another news story noted the plight of food processing firms in southern Minnesota towns that have outgrown local labor markets and are mounting extensive campaigns to attract workers from other states. Still other Minnesota firms are offering $50 payments for bona fide applications and $25 to $250 referral bonuses to current employees. A major printer seeks more than 100 skilled press operators. Skilled workers are also hard to find in Sioux Falls, S.D.
These tight conditions bring increasing reports of compensation increases, in base pay for some workers and in increased benefits, bonuses and incentives for many others. The personnel director for a major Minnesota financial institution says, "Good database people can pretty much write their own check." Fast food outlets in Missoula, Mont., reportedly are offering $6.50 per hour for starting part-time help, a level previously unheard of in that area. But some other employers report moderate pay increases. Over 80 percent of business owners in Michigan's Upper Peninsula who responded to a Minneapolis Fed poll expect that wages would increase 2 percent to 3 percent in the next 12 months. Moreover, a survey of compensation managers for Minnesota firms indicated pay increases averaging 4 percent.
In spite of these reported pressures in labor markets, price increases in markets for raw materials, intermediate goods and final goods generally remain scattered and small. The drop in agricultural commodity prices over the summer eased pressures on food prices, with the exception of dairy products. Petroleum costs remain above year-ago levels, and trucking firms continue to complain of the resulting squeeze on their operating margins.
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