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Despite record snowfalls and severe cold, the pace of the Ninth District economy apparently is quickening. Construction and oil drilling are equal to or ahead of year-earlier levels. Manufacturers generally report continued good business, if anything stronger than at the close of 1996. Retail sales of general merchandise and vehicles reportedly picked up in January and February after a subdued holiday season. Tourism reportedly has improved somewhat in recent weeks. Labor markets remain very tight, with reports of substantial pay increases for some computer and engineering specialists. But there are few reports of higher prices for goods or for inputs other than natural gas and lumber.
On the down side, the severe winter has been costly to agriculture. Output and employment at gold mines and oriented-strand board plants may be reduced due to declining product prices and large inventories.
General Business and Economic Conditions
Confirming anecdotal reports of a strong economy, the state of Minnesota projects a $2.3 billion surplus for the upcoming fiscal biennium due to extremely strong tax revenues and low welfare and unemployment outlays. This is up from a preliminary $1.4 billion projection made only weeks earlier. Most other district states also are in good fiscal positions.
Construction and Real Estate
"Housing market explodes," headlined a special report in a west central Wisconsin newspaper which predicted "activity expected to remain strong." In Sioux Falls, S.D., the value of January building permits was nearly twice that of a year earlier, and builders expect 1997 to be even better than 1996. For the Minneapolis-St. Paul metropolitan area, new home permits for January were up slightly from a year earlier, a time when building already was at a fast pace. News reports on higher lumber prices noted that this factor was pushing up the cost of new homes, but that higher prices were doing little to dampen new construction orders. Construction of two major office buildings was announced recently in Minneapolis. Three large employers leased office space in downtown St. Paul, significantly lowering vacancy rates.
Natural Resource Industries
The North Dakota oil boom, which continues at an active pace in spite of a bitter winter, has extended to Montana, where the rig count is about twice that of a year ago. Iron mining is straining against the constraints of harsh weather to meet desired shipments. Lumber mills in the western portion of the district are profitable as the result of higher lumber prices, but output continues below levels of a few years ago due to decreased sale of timber from federal land. Sources in the paper industry also report stronger prices and output after a slump in 1996.
On the negative side, some Montana gold mines are expected to slow output in 1997 due to low prices. And a major producer of oriented-strand board announced it will lay off 500 workers at three plants for at least two weeks in March because of growing inventories and falling prices. The phenomenon of sharply higher dimension-lumber prices coinciding with lower building board prices occurred because the latter product has not been subject to the same supply limitations as saw timber.
Manufacturing
"Business boom underway," headlined a Houghton, Mich., newspaper's description of the expansion of light manufacturing in its area. "Business has been extremely good," reports the owner of a North Dakota aluminum extrusions producer. In a similar vein, Minnesota manufacturers of bolts and other fasteners, of air filtration equipment, and of industrial painting and lubrication equipment reportedly expect strong growth in 1997. In Butte, Mont., construction of a $465 million silicon plant is well under way and should employ 165 production workers in midyear. Overall, Ninth District manufacturing appears hale and hearty, with generally good sales and few price pressures on the input side. Inventories are described as normal, and no delays or bottlenecks in delivery of inputs are apparent. Securing skilled labor is the only problem commonly reported by manufacturers. A steel firm describes sales as moderate, but stronger than three months ago.
Agriculture
"You are continually tired, it just never lets up," is how one South Dakota farmer describes the challenge of caring for livestock in the most severe winter in decades. Many cattle have died, including at least 40,000 head in South Dakota, or 2 percent of that state's beef herd. Many farm buildings have collapsed due to abnormal snow loads. In Minnesota, over 5,000 farm buildings have been damaged or destroyed, and the number is thought to be similar in the Dakotas. Most farmers have unusually high fuel expense for snow removal, and livestock weight gains and general condition are poor. Hay prices are well above normal levels in many areas. Looking ahead to warmer weather, federal hydrologists warn that the potential for flooding in many areas is the highest in decades.
Consumer Spending
After a somewhat restrained holiday season, several retailers reported much stronger sales in January, but at very thin margins. One Montana mall reported January sales up 26 percent compared to the same period in 1996. This pattern of stronger January sales is confirmed by mall managers in other district states, although traditional Main Street retailers in western Minnesota and in North and South Dakota complain of disruption of sales by successive winter storms.
"Dealers have sold a ton of pickups," reports one South Dakota source. Other industry spokespersons describe a pattern similar to general merchandise sales, that is general improvement in spite of episodic slow periods due to bad weather.
Tourism and Recreation
"Things are looking good," reports a northern Wisconsin tourism official, citing favorable snow conditions for snowmobiles and cross-country skiing. After a slow start, tourism and hospitality firms report some improvement in several areas. January tourist-related tax receipts were up 11 percent in western South Dakota compared to a year earlier A Minnesota ski resort owner describes business as moderately good in spite of increasing nationwide competition in the sector and adverse demographic trends.
Employment, Wages and Prices
"It got crazy right after New Years," reports the CEO of a software firm with operations in Wisconsin and Minnesota. "Other companies are paying up to $25,000 additional per year to pirate programmers away from my company." This phenomenon, confirmed by other sources in the software industry, is attributed in part to mushrooming attention to the "Year 2000" problem in much existing software. "It's becoming a feeding frenzy," says another source. While no other sectors report the 20 percent to 50 percent increases offered to skilled programming specialists, the market for technical specialists remains very tight. A Minnesota electronic device and instrument firm reportedly is offering $5,000 signing bonuses plus pay approaching $40,000 to engineering majors who will receive their B.S. degrees in June.
Despite tight labor markets, there are few reports of increasing prices at producer or consumer levels. One exception is natural gas, cited by many industrial firms such as foundries and glass factories that use this resource for process heat.
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