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Despite uncertainty and increasing caution, the level of output in the Ninth District economy continues strong. Construction seems indefatigable and is a source of strength for the broader economy. Consumers continue to buy freely and tourist revenues are the strongest in some time. Manufacturing, which is generally strong, shows increasing variation among firms and some signs of slowing growth. Natural resource sector production continues largely unchanged except for iron mining, which faces cuts due to increased steel imports. Banking remains profitable overall. Labor markets remain tight in most areas. Agriculture, pressed by low prices for crops and livestock, remains the most financially strained sector.
Business Sentiment
In September, a regional business conditions index compiled at Creighton University in Omaha using a survey of purchasing managers continued the decline begun earlier in the year. The survey also showed declines in export sales for Minnesota and both Dakotas. Businesspeople contacted for this report generally showed less unease than in early September, but continued to express some concerns about slowing.
Banking
Ninth District banking conditions vary considerably by locality. Banks in areas where commercial and residential real estate markets are active report strong loan demand, increased profitability and solid asset quality. Rural, agriculturally dependent bankers tell a different story. "We are running out of rope up here," remarked a banker in northwestern Minnesota, "Some of our best farmers are quitting." Agricultural banks are reportedly attempting to diversify their portfolios by branching into urban markets.
Construction
"Construction booming in Minnesota, Dakotas," according to a Fargo, N.D., newspaper. Total construction spending in that city is expected to hit a record. The sector is strong in residential, commercial and heavy construction categories in most states. Shortages of workers and subcontractors are common in Minnesota and eastern North Dakota and South Dakota cities. As in recent reports, residential construction is strong in most urban areas. Office building in Minneapolis is at the highest level in 11 years.
Manufacturing
Most manufacturing firms remain busy, but only slight growth is seen overall. Export sales are reportedly down for many firms. Firms making semiconductor-related products also face slack demand. Printing continues strong, and demand for construction machinery is booming. Auto component firms idled by strikes in early fall have resumed full production. Medical device manufacturers continue to grow. General machining and metal finishing shops report mixed conditions, with some continuing a full output but others slowing a bit.
Agriculture
"We are on the verge of some potentially serious problems with poor prices being the primary cause," says a Minnesota banker. Crops were excellent in virtually the entire district, but prices for all grains and oilseeds as well as cattle and hogs are at low levels. Income and investment in the farm sector are clearly the lowest of any in the district. Agricultural trade issues with Canada are a hot topic and actions to restrict imports from that country have been undertaken by farm groups and state governments. Dairy farmers, who enjoy near-record milk prices, very low feed costs and ample hay supplies, are a stark exception to the generally bleak pattern in agriculture.
Energy and Mining
The natural resource sector continues slack with little change from earlier in the year. Energy output is stable, with little new leasing or drilling. Nonferrous mines have largely stable output despite low output prices. A Minnesota iron mine shut down one of five processing lines and others are contemplating similar cuts if demand continues to fall. Weakness in demand for ore is attributed to increased imports of steel from several countries. This slackness is reportedly due to strong import competition in finished steel and not any weakness in demand itself. Most paper producers face low prices and some are running below capacity.
Consumer Spending and Tourism
"We have not seen any cut back yet," says one Minnesota mall manager. This is generally true across the district as retailers continue to report good sales in most urban areas. A South Dakota source reported that 20 new stores, some seasonal, were opening in the state's largest mall. Sales of apparel, recreational equipment, electronics and appliances are all reported as good. In nonurban areas, structural changes in retailing continue to hurt main street businesses as they have for some time.
"Sales have generally been pretty good," says an eastern Montana auto dealer. "Sales are OK in the bigger towns," reports a South Dakota dealers' association representative noting the negative effects of low farm prices on sales in rural areas. Overall, district auto sales appear unchanged, good but not growing appreciably.
"Tourist season a huge success," headlined a Michigan newspaper's description of activity in the Upper Peninsula. Montana officials described that state's season as one of the three best ever. For the first time in four years, tourism and recreation businesses across the whole district had a very strong year. Expectations for fall hunting business in South Dakota and Montana are also strong.
Employment, Wages and Prices
"At record 1.2 %, businesses strain to find workers," headlined a Sioux Falls, S.D., news report on the effects of low unemployment rates. "It's the worst year I've seen in 30 years in the business," says the vice president of a Minnesota home builder, in describing how labor shortages are holding back output for his firm. "Labor shortages continue to be the number one problem for many businesses," reported one member of a Minneapolis Fed advisory council. Labor markets continue tight in most towns and cities with populations above 10,000. Firms continue to offer bonuses and extended benefits packages to lure workers.
But some signs of slowing are evident. A Minnesota iron-mining firm reduced overtime hours as it cut production. And in western Wisconsin, unemployment rates edged up over the summer, though they remain below national levels and those experienced a year ago in the area. As in the past several quarters, there are anecdotal reports of substantial salary increases for certain occupations, but firmwide pay
increases continue in the 2 percent to 4 percent range.
Price increases are virtually nonexistent at the producer level and small for consumers. One manufacturer said that cheaper steel is helping to offset somewhat higher wages. Motor fuels continue to trend slightly downward.
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