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As 1998 draws to a close, the Ninth District economy displays great strength as it has throughout most of the year. Consumers continue to spend at record levels. Construction activity is robust in most areas. Manufacturing output is strong overall, and many plants continue to operate near capacity. The primary commodity sectors including agriculture, oil, mining and logging continue under pressure from low prices. Loan growth has slowed for banks, which continue to generate strong profits. As throughout the year, labor markets are tight in many areas, but compensation cost increases remain limited. There is little evidence of price pressures at consumer levels.
Consumer Spending and Tourism
"Our holiday push started way back in mid-September," says a representative of Minnesota's largest mall, who described most stores' sales growth over 1997 as "in the high single digits." "The warm weather is really helping; we have a lot of traffic," reports a South Dakota mall official who described strong buying the day after Thanksgiving. Other retail sources also reported very good sales for the Thanksgiving weekend. Retailing remains very competitive, but consumers are spending at record levels in urban areas, according to merchants and state finance officials. Only small town merchants in agricultural areas report slow sales. Auto sales are described by dealer representatives as generally strong, with a continuing preference for light trucks and sport-utility vehicles. Dealers in farming areas are an exception to this generally positive picture. The summer and fall tourist season was one of the best in recent years, due in part to low gasoline prices. Lack of snow has delayed winter recreation activity in some areas, but business owners are generally optimistic.
Construction and Real Estate
"Shortage of rental housing a crisis," headlined a November story in a Minnesota business newspaper. In response to such tight housing markets, multifamily construction in the state continues well above year-earlier levels. Single-family building remains robust in most urban areas. Office tower building is at the highest rate in 11 years in Minneapolis-St. Paul. General commercial building and heavy construction are also robust. Unseasonably warm weather in late November has been very favorable to builders in many parts of the district.
Manufacturing
Manufacturing output is generally described as strong, with little change as the year ends. Manufacturing employment is only about 1 percent above 1997 levels, but plant owners frequently state that productivity increases allow them to expand output at a higher level and that they are running at or near capacity. Printing capacity is highly utilized, and press scheduling has been very tight. The district's only auto plant, which produces pickups, has had strong orders. However, firms for which exports to Asia and Latin America are important continue to experience slackness, as do manufacturers of agricultural implements.
Banking
Reportedly, loan growth has slowed somewhat from late summer across the Ninth District, but competition in making loans remains fierce. "Banks are knocking each other out" to get good commercial loans, remarked one banker. "It's a real fight these days." Slippage in the credit quality of agricultural loans was reported in some areas of the district. Banks are reportedly responding by increasing their reserves for loan losses. Banks in some areas are also reportedly tightening credit due to adverse agricultural conditions. Profitability is expected to be consistent with 1997 performance, mostly due to very strong first and second quarters in 1998.
Agriculture
Agriculture remains financially stressed. Prices are low for most Ninth District farm products except milk. But preliminary responses to a Minneapolis Fed fourth quarter survey of ag bankers reveal some hope that October upticks in grain prices bode well for improvements in their customers' income and spending. With all the harvest in, the 1998 crop was record setting for most farmers. High output and slow sales by farmers have resulted in a storage crunch, with large quantities of corn in temporary storage on the ground. Dairy farmers continue to face very favorable milk/feed price ratios.
Energy and Mining
Once again, natural resource industry output shows little change from earlier in the year. Oil, gas and coal output is reportedly stable, with little new leasing or drilling. Copper and gold mine output is stable, though passage of an environmental initiative in Montana will limit new gold mining operations. Iron mines are finishing the year with output near earlier projections, but expect reductions in 1999 because of import competition. One Montana logging company will furlough 45 workers largely due to reduced demand in Asia.
Employment, Wages and Prices
Tight labor markets continue as a difficult problem for business. Unemployment rates are low and largely stable in most parts of the district. Even in Michigan's Upper Peninsula, usually the Ninth District's most sluggish labor market, unemployment has dropped below the national average. As before, employers report increases in starting wages and nonwage compensation, but there is little evidence of any sharp escalation in labor costs. In Minneapolis-St. Paul, hourly earnings in manufacturing are up about 2.5 percent from a year ago. There are few price increases at the producer or consumer levels. Gasoline is available at less than 90 cents per gallon in some areas, and red meat is often highly discounted in supermarkets.
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