|
On balance the Ninth District economy continues to show steady to strong growth in most sectors. But overall strength and booming urban areas are shaded slightly by slowing in nonurban areas of the district due to adverse weather and declining commodity prices.
Most sectors and households continue to enjoy a very strong economy. Construction and manufacturing are striding workhorses that continue to provide impetus to the economy as a whole. Retail sales of general merchandise are very strong. Oil and iron ore production levels are at decade highs. Banks reportedly have good loan volumes in a competitive environment. Unemployment is low and price pressures are scarce.
But declining prices for hogs, corn and soybeans combined with already low wheat prices and concerns about moisture availability have sharply curtailed farm profitability and optimism for the new year. Warm weather and poor snow cover hurt revenues for many winter recreation firms. Many businesses are cramped by labor shortages.
Manufacturing and Business Services
Manufacturers generally report good orders. Medical electronics and devices continue strong in Minnesota. Machining, metal finishing, electronic instrumentation, printing, metal tubing and other firms in Minnesota, Wisconsin and South Dakota also report good business. North Dakota firms producing specialized mining machinery and wiring harnesses and remanufacturing aircraft announced expansion plans. An insurance processing operation will employ 400 in Sioux Falls, S.D., and a software firm will hire 50 in Duluth, Minn. One computer materials plant employing 100 people will close as the parent firm streamlines operations.
Construction and Real Estate
"Business building booming," was the headline for a Sioux Falls news story, but could have applied as well in Minneapolis-St. Paul, Eau Claire, Wis., Fargo, N.D., or other urban areas where industrial, commercial and office construction is very robust. "New home sales soaring," was the word in Minneapolis-St. Paul where January new permits ran 7.2 percent above 1997. Residential builders are busy and anticipate a good year in virtually every city over 10,000 population, with the exception of a few in Montana.
Publicly let building and infrastructure projects are running about even with last year's record pace.
Natural Resource Industries
Oil output in North Dakota has risen to its highest point this decade, and drillers for both oil and gas in that state and Montana continue to benefit from a mild winter. However, while rig counts remain high compared to earlier in the decade, industry sources warn that dropping energy prices soon will curtail drilling since most wells in the district are high-cost relative to yield.
Lake Superior iron mines anticipate overall production slightly above the 16-year record output set in 1997, but express concern about how lower Asian currency values may boost U.S. imports of steel and steel-containing products from that region. One mine cut its projected output slightly and laid off some 20 workers. A Montana gold mine closed with the loss of nearly 300 jobs due to low gold prices and to unrelated financial problems in the parent firm.
Forest product output is expected to be largely steady in western areas of the district due to cutting constraints, but strong in Minnesota and Wisconsin as oriented strand board plants run at capacity to meet builders' demand. Paper production is described as steady to moderately stronger.
Agriculture
"The mood among wheat farmers is pretty grim," says one Montana implement dealer. That observation has been true for several months, but recent declines in corn, soybean and hog prices have extended the region in which farmers are under financial stress. "The bloom sure came off the hog market in a hurry," says a southern Minnesota banker. Slaughter hog prices have dropped to the low $30 per cwt range, down 40 percent from a year ago and 20 percent from early December. Corn and soybean prices have also weakened from early winter, though relative to costs are still more favorable than that of wheat. Farmers in the western Dakotas and Montana are concerned about unusually small snowpacks, low reservoir levels and inadequate soil moisture.
Banking
Pricing competition reportedly is intense. A senior correspondent banker remarks that "banks may have come to the point where they simply cannot lower prices." The competition for loans raises some bankers' concerns about future credit quality. Loan volume is good overall but there remains considerable variance by locality. Like loan demand, liquidity is good overall with substantial variation by locality.
Consumer Spending and Tourism
"Retailers report strong February," headed a news article on sales by Minnesota-based national firms. The report cited warm weather as a positive factor for electronics, appliance, apparel and other consumer product sales nationwide. A regional chain also reported good sales, which is supported by reports from mall managers in urban areas. Several sources report softening sales in nonurban areas of the Dakotas and Montana.
Vehicle sales remain mixed, with continued slowness in Montana and rural areas of the Dakotas. Minnesota and Wisconsin sales are reportedly "stable" and "a little above last year." "We aren't getting the benefits of mortgage refinancing that we did a few years ago," says one auto dealer.
Unseasonable warmth and inconsistent snowfall across the district produced uneven results for tourism businesses. In the Upper Peninsula of Michigan, a tourism official reports that the snowmobile season and some ski hills ended early due to lack of snow during February. A chamber of commerce in northern Wisconsin expects winter tourism to be 15 percent to 20 percent lower than last year. While snowmobiling was stifled in northern Minnesota, a downhill ski resort expects a 10 percent increase for the season. Recent snowfall in South Dakota has boosted snowmobile traffic and inquiries to a local tourism office.
Employment, Wages and Prices
The recent headline "Newspapers reap bounty as classified ad volume soars," highlights one sector benefiting from extreme tightness in labor markets. Minneapolis-St. Paul newspapers have seen double-digit increases in help-wanted ad revenues in each of the last three years. With unemployment rates at or near record lows, most urban businesses in the district feel labor market tightness in one way or another. While extensions of benefits, hiring bonuses and so forth are quite common, across-the-board wage and salary increases generally remain in the 2 percent to 4 percent range. Minneapolis-St. Paul hourly earnings in manufacturing are about 2 percent above year-earlier levels.
Energy prices remain well below year-earlier levels. With such prices and with warm weather, household heating costs in most areas are the lowest in many years. Gasoline prices are down as much as 20 cents per gallon from early 1997. Commodity and intermediate good prices are down or quiescent. Increased prices at the consumer level are relatively rare.
|
St. Louis