October 29, 1997 Federal Reserve Districts Ninth District - Minneapolis

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The Ninth District economy remains strong. Earnings are up, tax receipts exceed expectations, and consumers are willing to spend. Plus, manufacturers report healthy sales, and a boomlet in oil and gas exploration is giving a lift to the North Dakota and Montana economies. To accommodate expanding businesses, builders are scrambling to provide new facilities. Mild fall weather has provided excellent harvest conditions. The district's robust economy, however, is taxing the ingenuity of employers as they struggle to hire workers in the region's tight labor markets. Although wage increases are not accelerating, employers are increasingly using other financial incentives to lure workers. Firms are holding the line on the prices they pay for nonlabor inputs, but pressures appear to be building for price increases. General business conditions A spate of recent reports denotes the continuing strength in the district economy. Strong economies in Minnesota and Wisconsin pushed recent state revenue collections ahead of estimates. Plus, the second quarter earnings of major Minnesota firms were up 12 percent from a year ago. This gain is "another example of why some economists are calling this the strongest economy in 30 years," says the Minnesota state economist. Consumer Spending and Tourism Consumers' willingness to spend manifests the economy's vigor. Recent retail sales have been good in Montana, Wisconsin and Minneapolis/St. Paul, with back-to-school sales stronger than normal, according to director and advisory council reports. Moreover, two national retailers with headquarters in the district report solid year-to-year sales gains in September. Meanwhile, tourism spending has recently improved. "We're expecting a strong ending to a slow start," says an Upper Peninsula tourism official about business this fall. Montana tourist-related businesses also experienced a pickup after a slow start. Manufacturing Expanding manufacturing sales are also giving the economy a boost. Major Minnesota manufacturers report rising sales and profits, with computer-related producers doing particularly well. In La Crosse, Wis., manufacturers are pushing on their capacity and having their workers put in considerable overtime, and in North Dakota manufacturing is very robust, according to an advisory council member. Amid this expansion, restructuring continues. In early October a large South Dakota computer manufacturer announced plans to lay off or reassign 300 workers as part of its ongoing restructuring efforts. Meanwhile, a large Minneapolis/St. Paul manufacturer said it was eliminating 500 jobs in its home and building controls unit. Construction and Real Estate Business is so good that many district firms are running out of room. In Minneapolis/St. Paul industrial space is tight, and in western Wisconsin office space is in short supply. Plus, 60 percent of respondents to a recent survey of Upper Midwest businesses indicate that they are planning expansions during the next year. Thus, across the region new factories, warehouses, office buildings and stores are bursting forth, while home building remains strong. Natural resource industries Expanding oil and gas exploration continues to give a boost to the district's western states. North Dakota is experiencing a boomlet, and in Montana more drilling opportunities exist than rigs are available. Low gold prices, however, are curbing mining in Montana. Agriculture Mild weather in September and early October is enabling many district farmers to realize their expectations for a banner harvest. In the eastern portion of the district an excellent soybean harvest is nearing completion, and the district's corn crop is maturing and is being harvested faster than normal. "Area farmers thrilled with bumper (spring wheat) crop," heralds a central Montana newspaper. But wheat production in North Dakota is down from a year ago. Labor markets and prices "Businesses cry for help," "�Help!' Say Retailers" and "Temp activity is tempestuous" headline recent newspaper articles discussing the district's intensifying labor shortages. Help-wanted advertising at a large South Dakota daily newspaper so far this year is up 30 percent from a year ago, and job turnover is nearing 30 percent at some companies in the Minneapolis/St. Paul area, according to an official with a temporary help firm. Tight labor markets are spawning creative recruiting efforts. A temporary employment agency is using prized tickets for the Vikings/Green Bay Packers football game to lure new temporary workers. A large Minneapolis/St. Paul retailer has its employees distributing "Wow�great service" cards to employees at other businesses who give them good service. It is intended to "woo" them to the retailer, for on the card is a contact and telephone number for the retailer's human resources department. Firms are also paying bonuses to employees for finding workers. As the search for workers intensifies, "Employers raise the ante, but not wages," declares another recent newspaper headline. A few firms are offering signing bonuses as high as $1,000 for new employees who stay with a job for six months; one retailer has expanded the merchandise discounts for its employees; and some employers have begun offering benefits packages to seasonal workers. But a recent survey of Minnesota compensation specialists indicates that over the next 12 months the typical employee will see wages rise about 4 percent, which matches the increases they received during the previous 12 months. Nevertheless, "we have been much more aggressive in paying for talent," states a human resource specialist at a large Minneapolis/St. Paul firm. Besides striving to hold the line on wage increases, firms are resisting other cost increases. Our company is "not accepting any price increases," reports a purchasing manager for a large Minneapolis/St. Paul company, and "the lid has been on price increases," states another purchasing manager. Nevertheless, about 25 percent of respondents to a recent survey of Upper Midwest businesses report price increases on material inputs. Moreover, "everyone coming at you wants a price increase," reports one of these purchasing managers, for most firms have not raised prices for the last two to three years. Increasing pressure on firms to maintain profits could push prices up, a Minneapolis/St. Paul manufacturer believes. Return to top St. Louis Kansas City