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In the middle of a bitter winter, the economy of the Ninth District is growing moderately. Construction continues to animate many areas. Oil development is pumping cash into parts of three states, while mining and forest product output is generally steady. Manufacturers report generally good business with normal inventories and no price pressures other than in fuels. Severe weather is causing problems for cattle ranchers, and hog slaughter has dropped slightly compared to a year ago. Consumer spending apparently is guarded, with holiday retail sales only slightly above 1995 levels and cold weather reportedly slowing car sales. Tourism sector reports are mixed, but with some improvement in regions that had been slow. Labor markets remain very tight. Many employers report difficulty in securing needed workers, but few have given or anticipate large pay increases. Prices, other than for petroleum products, show little increase.
Construction and Real Estate
"Vermillion sees housing binge," is a headline describing construction activity in one small South Dakota city that could apply equally well to several other towns of the same size in Minnesota, North Dakota or South Dakota. "The boom rolls on," headed a report on Minneapolis-St. Paul residential building that concluded, "industry experts expect the good times to continue." Generally strong fiscal positions for most district state governments point toward increased public-sector construction in 1997, according to one industry official. Realtors report good business for the season, after some slowness in mid-1996.
Natural Resource Industries
Oil and gas continue as the natural resource sector's strongest component. Rig counts are holding up well despite bitter weather. Western North Dakota is the most active area, but two or three rigs have been drilling in South Dakota, a state that usually has no such activity. Iron ore and nonferrous mining output is largely stable. Paper, lumber and building board output shows little change compared to prior quarter and year-earlier levels. Higher prices for dimension lumber, described as resulting from curtailed imports from Canada, have improved profitability for sawmills in the western portion of the district that have faced higher acquisition costs for timber in recent years.
Manufacturing
"Business is very good, our backlog of orders is the highest it has ever been," reports one North Dakota manufacturer with a national market. Electronics and other technology firms also reportedly are doing well. A mining equipment manufacturer and fabricators of agricultural implements reportedly have strong orders. North Dakota continues to add to its agricultural processing capacity: A 100-employee pasta plant and a corn sweetener plant recently went on line. One exception to this general pattern is a South Dakota manufacturer of tourist industry specialties who reports, "We are slow, it was a very soft summer." Industry sources report normal inventories, with no delays and few price pressures in raw materials.
Agriculture
Extreme cold and unusually deep snow are the most recent scourge for cattle ranchers. Early and deep snow precluded the use of winter pastures and forced ranchers to dip into hay supplies earlier than usual. Extreme cold increases the nutritional requirements of cattle and thus of hay consumption. These factors have led to sharp increases in the prices of hay in Montana and the Dakotas, further increasing ranch losses. Blizzards over the first weekend in January reportedly caused mortality in cow herds in north-central South Dakota, but no good estimate of losses is yet available. However, if ranchers can weather the season, some hope glimmers in the new year. Many district livestock market analysts believe the price trough in the cattle cycle was passed in 1996 and that ranchers should see some return to profitability in 1997 with further improvement in 1998.
Hog prices are somewhat higher than in the first half of 1996, and with lower feed costs following harvest, hog producers are doing better than a year ago. Hog slaughter is down slightly from year-earlier levels.
Consumer Spending
"People are a little disappointed," says one St. Paul, Minn., mall manager in an assessment of the 1996 holiday shopping season that typifies much of the district. A check verification service estimated that Minnesota holiday sales were up less than 2 percent and the month of December itself was flat, both compared to year-earlier levels. Retailers in western Wisconsin, one of the fastest growing areas in the district, are somewhat more positive as are their counterparts in North Dakota. "Holiday business: merry but not memorable," is how a Grand Forks retailer summed up the season. Consumer caution, widespread discounting and intense competition mark the sales environment described by retailing CEOs at a Minneapolis Fed meeting. Reports on vehicle sales are mixed; some dealers reported good sales in late 1996, but association representatives agree that sales have slowed in recent weeks. Bad weather is blamed in part. "No one wants to go car shopping when the wind-chill is 60 below," says one.
Tourism and Recreation
A Montana newspaper reports ski resorts in that state opened up to two weeks early and posted large year-on-year increases in November and December. Good snow conditions are keeping ski and snowmobile trails busy in South Dakota, according to a tourist official. But a ski resort operator in northern Minnesota reports a slight decrease in the number of visitors compared to last year's record pace, and the deer hunting season in Michigan's Upper Peninsula was disappointing for local businesses. These reports of greater strength in western areas of the district reverses a pattern of more optimism in the east that prevailed through much of 1996. Winter recreation businesses in Minnesota, Wisconsin and Michigan reportedly continue to anticipate good business, but extremely cold, stormy weather is eroding those hopes.
General Business Sentiment
Businesspeople who responded to a Ninth District poll at the end of 1996 generally expressed expectations of continued moderate economic growth in 1997. Nearly two-thirds expect business investment to increase in their community in 1997, and over half expected increasing employment levels. Less than a fifth expected wage increases in their community to exceed 4 percent while about a third expected their own firms would raise product prices. Over 80 percent of respondents characterized themselves as somewhat or very optimistic about their community's prospects for the next 12 months. Within this generally optimistic outlook, responses were most positive from northwest Wisconsin, Minnesota and eastern North Dakota. In general, the view from respondents in Montana and South Dakota was decidedly less bright.
Employment, Wages and Prices
Unemployment rates remain very low in most areas of the district, except for Montana and Michigan's Upper Peninsula, which are somewhat above the national average. Employers in many areas continue to express concern about securing needed workers. But most report pay increases of 2 percent to 3.5 percent. Flat health insurance rates have helped to keep overall compensation costs down. Petroleum products remain higher than a year ago, but are the only frequently mentioned higher price.
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