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The Ninth District shows little change from earlier in the year. The economy is growing moderately in most urban areas and strongly in some. But increasing weakness in farming and other natural resource sectors is casting a pall over spending in rural areas, particularly in Montana, North Dakota and South Dakota.
Urban economic activity shows little change from the previous report. Construction appears indefatigable in most areas, despite a few anecdotal reports of softening. Manufacturers remain generally busy, though a few small layoffs were announced. General merchandise and apparel sales continue strong. Bank lending remains aggressive and there may be some erosion of underwriting standards. Labor markets continue tight and price increases for goods or services, low.
Change is most visible in the natural resource sectors. Agriculture, where farmers are suffering financial stress from recent price declines, is the most sharply negative component in the district economy. But there is also slowing in oil and gas development and mining. In addition, tourism remained weak in most areas through the first quarter of 1998.
Construction and Real Estate
"Construction is very good," comments a Billings, Mont., director, whose report would apply to nearly every other major Ninth District city. The mix varies. In the Minneapolis-St. Paul area both single-family and multifamily residential building and central city office tower construction are strong, but one mid-size commercial builder notes some softening in suburban light industrial and commercial property. Sioux Falls, S.D., and Fargo, N.D., however, display strength across all categories.
Manufacturing and Business Services
Manufacturing continues to exhibit strength, though there are a few reports of slowing orders or plant closings. Missoula, Mont., lost one small plant and in Wisconsin a pizza plant and computer manufacturer laid off workers. These layoffs are all related to firm-specific circumstances and contrast with a general pattern of good orders in electronics, machined components, printing and other categories. Most publicly traded manufacturing firms continue to report good earnings growth over year-earlier levels.
Natural Resource Industries
There is growing evidence of slackness in many Ninth District natural resource industries as lower commodity prices start to hurt. Drilling rig counts continue to drop as firms complete existing jobs but delay or cancel new ones. Gold mines are tightening their belts; the largest one in South Dakota and the district has laid off much of its workforce and announced a permanent restructuring to a lower level of employment and production. Lake Superior iron mines still anticipate a good season, but do not expect to pass 1997's 16-year record output. In forest products, building board production is described as steady. There reportedly is increased output of some grades of paper.
Agriculture
"Declining market prices for all feed grains and livestock have negatively impacted all farm customers. It could become very serious," reports an eastern South Dakota banker responding to the Minneapolis Fed's survey of agricultural credit conditions. Such pessimism prevails among farmers and farm-related businesses across the district. Sharp late winter declines in hog prices and slippage in corn and soybean prices spread the financial problems already besetting wheat farmers to the rest of the district. Northeastern North Dakota and northwestern Minnesota continue to face the most severe situation due to plant disease problems that have persisted over several years. There the number of farm auctions is reportedly the highest since the mid-1980s. Bankers note most liquidations are voluntary, with operators getting out while they still have positive net worth.
The only brightness in farming seems to be in Wisconsin, where recent milk prices are higher than in late 1997. And concerns about reservoir levels and soil moisture in Montana and western North Dakota have been alleviated by late winter snows and rain in April.
Banking
As reported previously, loan pricing competition between banks remains intense and may be leading to some slippage in underwriting standards. Pricing at the prime rate "used to be, but is no longer, reserved for the best customers," remarked one source. Despite continued strong construction statistics, in April a few banking sources report a slowing in construction loan growth in urban areas where such activity has been high.
Consumer Spending and Tourism
"We have plenty of traffic and pretty good sales," says a North Dakota mall manager. South Dakota revenue officials reported gross sales in that state in February up 10 percent from a year earlier and noted particular strength in sporting goods and home furnishings. Retailers in Minnesota and Wisconsin urban areas also report good to strong sales of apparel and general merchandise. However, towns in rural regions, particularly the Dakotas and Montana, note that low farm cash flows are biting into sales.
Vehicle sales remain sluggish in Montana and the Dakotas, as they generally were through the first quarter. Minnesota and Wisconsin dealers describe sales as so-so. "I thought we would get more help from low gas prices," says one dealers' association representative.
"Tourism plunges in Flathead Valley," was the headline for a Montana newspaper article about the effects of the mild winter on ski resorts in that area. Overall, winter recreation businesses had a disappointing season, but owners are generally optimistic about the spring and summer, citing warm weather for early outdoor activities and low gas prices as favorable factors.
Employment, Wages and Prices
Unemployment rates remain very low in most areas and employment numbers strong. One labor market official notes that the unusually warm winter led to much lower than usual seasonal employment fluctuations.
Employers continue to report difficulty in hiring qualified workers, but a few sources report some easing from mid-winter in a still-strained market. One small computer service firm noted that it had three times as many applicants for an advertised position as it had for an identical one nine months ago. "The century date hiring frenzy is over," he reports, "Companies either have the people they need, or they are not going to do anything." One St. Paul, Minn., fast food franchisee also reports easier hiring than throughout 1997.
Gasoline and other petroleum products remain low in price, about 10 percent below year-earlier levels. Prices of energy-related fertilizers such as anhydrous ammonia are below 1997 planting season levels. Manufacturers report little or no increases in the prices of intermediate goods or other inputs; some who source components in Asia report decreases. Prices also seem dormant at the consumer level where lower pork prices in late winter and spring are helping hold down grocery bills. Imported apparel prices reportedly also are trending slightly downward.
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