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The Ninth District economy starts the new millennium at full speed. The construction, manufacturing, energy and mining industries remain robust. Moreover, consumer spending continues to increase. While cattle producers' financial conditions have improved, other agricultural producers are still struggling. Meanwhile, the continued tight labor markets are generating hiring difficulties and wage pressure. Overall prices show some signs of acceleration.
Construction and Real Estate
Construction remains strong. Contract awards for construction projects increased almost 7 percent for the three-month period ending in November compared to a year earlier. Due to an increase in federal highway funds, Montana awarded $78 million more to contractors in 1999 than a year earlier for road and building projects. A Sioux Falls, S.D., mall is undergoing an over $8 million expansion. In addition, a major Minneapolis area mall has recently announced a $1 billion expansion plan for the next decade. However, some signs of future slowing are emerging as the vacancy rate for office space in the Minneapolis/St. Paul area has recently increased. Vacancy rates could reach 12 percent in 2000 from about 8 percent in 1999, according to an industry spokesperson.
District homebuilding has recently cooled down. Housing units authorized for the district decreased almost 3 percent for the three-month period ending in November compared to a year earlier. In Minneapolis/St. Paul, housing units authorized dropped over 4 percent for the three-month period ending in November compared to a year earlier. A Minneapolis/St. Paul building association representative claims the slowdown from a vigorous pace "may mean we can get our building cycle back to a normal timeframe."
Consumer Spending
Retailers achieved their lofty expectations for strong holiday sales and expect increases during 2000. A Minneapolis area catalog and e-commerce distributor had 70 percent more orders compared to last year. A Minneapolis area mall reports holiday sales up over a year earlier, and a North Dakota mall manager reports sales are up 6 percent to 8 percent in December compared to a year earlier. Retailers in Sioux Falls, S.D., report the best holiday sales ever, according to an economic development official. However, outdoor apparel and sporting goods sales increases were lower relative to other holiday purchases due to the mild winter weather. Auto dealers in South Dakota report December sales above a year earlier, while North Dakota dealers report level sales. In addition, the outlook for retail sales is positive as half the retailers responding to the November Ninth District business conditions survey expect increased sales in 2000.
Tourism activity is holding steady despite lack of snow in some areas. While snow is light in South Dakota, snowmobiling and cross country skiing are under way, and downhill ski resorts report good business. Moreover, resorts near downhill ski areas that have machine-made snow in northern Minnesota have solid bookings. In the Upper Peninsula of Michigan, which has snow cover, reservations at resorts for January and February are as good or better than last year, according to a tourism official. However, snowmobiling and cross country skiing in northern Wisconsin and Minnesota are down, according to tourism officials.
Manufacturing
Manufacturing in the Ninth District remains robust, with many manufacturers optimistic about 2000. Based on the business conditions survey, 70 percent of manufacturers expect increased sales in 2000. In addition, 44 percent expect increased investment in 2000. Consistent with our survey, a purchasing manager survey by Creighton University indicates a strong manufacturing sector in Minnesota and South Dakota; however, the same survey reports languishing manufacturing conditions in North Dakota. As evidence, sales and investment are up from year-earlier levels for a Minnesota plastic product company and a Wisconsin paper manufacturer. However, a Minnesota motorcycle producer declared bankruptcy.
Mining and Energy
The iron ore industry has rebounded from its slump. An iron ore industry spokesperson reported full production and strong demand. October iron ore inventory levels are down 16 percent from a year ago.
Meanwhile, with the significant increase in North Dakota sweet oil prices from $6.05 in December 1998 to $21.30 in December 1999, oil exploration activity has jumped. In December, 11 rigs were operating in North Dakota and eight rigs in Montana compared to six and six, respectively, a year ago. In addition, estimated December oil production in the district was up 2 percent from year-ago levels.
Agriculture
The strong economy has generated increased demand for meat. High cattle prices and low feed prices are boosting rancher income. The U.S. Department of Agriculture expects cash income in 2000 for cattle ranchers to exceed their 1994-1998 average. In addition, with the mild winter, Montana ranchers report healthy animals as most livestock has been moved to the winter ranges. Meanwhile, the low crop prices and a continued dry, warm winter has farmers worried. Wheat, soybean and corn prices remain low. In addition, winter wheat producers are concerned about the lack of snow cover to protect the crop. Moreover, the dry soil conditions have farmers worried about a possible drought next summer.
Employment, Wages, and Prices
Labor markets remain tight as employers report difficulty finding workers. Based on the business conditions survey, 42 percent of respondents consider securing workers a serious challenge for 2000, up from 25 percent a year earlier. Minneapolis census officials are anticipating difficulty filling positions to staff the upcoming census. A 24-hour store in North Dakota hasn't stayed open all day and night for two months due to a lack of employees. A worker shortage remains for the health care profession.
Employers are boosting wages to attract workers. The business conditions survey indicates that over 40 percent of respondents plan to increase wages this year at least 4 percent or more, up from 25 percent of respondents in last year's poll. In addition, bank directors report climbing wages in urban areas, accelerating above 3 percent on average compared to a year earlier. During the holidays, retailers offered prospective hires starting bonuses, tuition reimbursements, health club and child care benefits and deep employee discounts.
Indications of price increases are growing. According to the business conditions survey, 34 percent of poll respondents indicate they will raise prices on their products and services in 2000, up from 27 percent of respondents in last year's poll. In addition, 79 percent of respondents expect the consumer price index to increase at least 3 percent in 2000. A hospital in La Crosse, Wis., plans to raise rates 8.5 percent. Rents and home selling prices are climbing in Minnesota, according to a state chamber of commerce official. Montana natural gas customers will pay 11 percent more to heat their homes this winter compared to last winter.
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