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As summer approaches, the overall Ninth District economy continues to expand, although natural-resource-based industries are still struggling. The economy remains robust for construction, consumer spending and manufacturing; consumers continue to spend and many businesses are expanding. However, low commodity prices persist in depressing farm income and curbing metal mining. Overall labor markets remain tight and in some cases businesses are paying more to retain workers.
Construction and Real Estate
Construction and real estate retains its momentum. The strong housing market in Minneapolis-St. Paul boosted home prices 10 percent in April compared to a year earlier. Homebuilders are very optimistic; year-to-date housing units authorized were up 62 percent through April in South Dakota, up 24 in North Dakota and up 22 percent in Minnesota.
Other construction remains strong. Plans for $80 million in new construction are set for downtown Duluth, Minn., according to an advisory council member. Bank directors report strong construction spending in Billings, Mont., and Fargo, N.D. The state of Montana is expected to pay contractors a record $200 million this summer for roadway improvements, 16 percent higher than the previous record. However, contract awards through April were down slightly from year-ago levels for the Ninth District.
Consumer Spending and Tourism
Consumer confidence is keeping retail sales vigorous and summer tourism prospects bright, as well as boosting merchandise and auto sales. Consumer spending is at last year's strong levels and auto dealers report steady sales in Montana. Mall sales are running 13 percent ahead of a year ago in Eau Claire, Wis., and are up 15 percent from year-earlier levels at a Minneapolis mall. However, small communities dependent on agriculture still show signs of softened sales.
Not only are people rushing to the malls, they are planning to visit vacation spots throughout the district this summer. The Montana tourism office predicts a 3 percent increase in visitors for 1999. Tourism businesses in Minnesota are optimistic for the summer season, especially along the north shore of Lake Superior, and Internet inquiries are significantly increased over a year earlier in South Dakota. Inquiries on tourism activities in the Upper Peninsula of Michigan are at record levels, according to a tourism official.
Manufacturing
Manufacturing in the district remains robust with several major manufacturers reporting higher levels of sales. As a result, district manufacturing shows signs of output expansion and productivity increases. A bus manufacturer is opening a new manufacturing plant in central Minnesota. A tool manufacturer in southern Minnesota is operating at capacity. A western Wisconsin plastic manufacturer is expanding capacity and an equipment manufacturer reported increased investment and productivity. A North Dakota food processor expanded its manufacturing capacity. An ethanol plant is under construction in South Dakota. Several other major district manufacturers noted continued improvement in productivity.
Mining and Energy
Metal-based mining industries remain depressed. In response to low metal prices and environmental legislation, Montana mining employment in March declined two percent from year-ago levels. In addition, due to continued weak demand for domestic steel, a northern Minnesota taconite mine plans to shut down one of its pellet-making furnaces and terminate 168 workers. Moreover, U.S. iron ore inventories in March were 21 percent higher than year-ago levels. "Unless there is a miraculous turnaround later in the year, we're going to see some (more) cutbacks at iron ore operations," said an American Iron Ore Association spokesman.
Meanwhile, oil exploration activity remains below year-ago levels with only two rigs working in North Dakota and three rigs operating in Montana compared to 12 and four, respectively, a year ago.
Agriculture
"Farm sales, liquidations and bankruptcies are on the increase," reported a South Dakota agriculture lender. Based on results of the Ninth District's second quarter (May 1999) survey of agricultural credit conditions, respondents reported that 31 percent of their agricultural customers were at their debt limit compared to 27 percent 12 months earlier. The second quarter 1999 survey revealed that 82 percent of respondents reported below normal levels of farm income compared to 71 percent of the second quarter 1998 survey respondents.
The reduced farm income is due to depressed livestock, corn, soybean and wheat prices. Many producers are still storing crops in hopes of future price increases. In addition, wet weather has delayed planting in many parts of the district. Some fields have standing water and may need to be replanted. The wet soil conditions also caused a small outbreak of anthrax in Montana.
Employment, Wages and Prices
Labor markets remain tight, with scattered reports of wage and price increases. A major staffing and employment service reports that 48 percent of companies in Minneapolis indicate plans for increased hiring in the third quarter, while 2 percent expect decreases. Last year at this time 40 percent planned increases and 5 percent expected decreases. Job openings outside the Twin Cities area are also plentiful, according to a survey of purchasing managers. Employers will have to scramble to find employees to fill these positions as unemployment rates across the district continue to stay at low levels. Unemployment in Minnesota dipped to 2.1 percent in April, the lowest ever recorded in the state and the lowest in the country. In Duluth, Minn., 200 trade workers from outside the area are working on local construction projects due to the lack of local workers.
While detecting overall increases in wages proves difficult, there are reports of some increases. An advisory council member reports that wage inflation is a concern as new hires command higher salaries. Faculty raises at South Dakota's public universities averaged 7 percent for 1999. In the Upper Peninsula of Michigan, building trade union contracts were recently negotiated at 4 percent per year over the next three years.
General price increases are also difficult to spot. E-commerce and competition are making it hard to raise prices, reports a bank director. Although tourism prospects look bright, a tourism official in the Upper Peninsula of Michigan isn't anticipating increases of more than 5 percent for lodging or other tourism-related expenses. A large manufacturing company in the Minneapolis-St. Paul area reports level input prices.
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St. Louis