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As summer begins, economic activity in the Ninth District remains hot. Construction, manufacturing, energy and platinum mining are still strong. The outlook for summer tourism is bright and consumer spending continues to heat up the economy. Agriculture is starting to improve from the dismal past financial conditions. Labor markets are still strong as businesses continue to report wage pressures, and some price increases are noted, primarily in petroleum, construction and housing.
Construction and Real Estate
Commercial construction is still expanding at a brisk pace. In the western suburbs of Minneapolis, the amount of available office space leased or purchased during 2000 is expected to finish twice as high as the previous record, according to a commercial real estate firm. This summer, South Dakota will spend twice the average amount of recent years on road construction projects. Contracts awarded for new construction projects in the Dakotas and Minnesota increased 22 percent for the three-month period ending in April, compared with a year earlier.
Meanwhile, homebuilding continues to grow. A building association representative in La Crosse, Wis., projects strong demand for high-priced homes for the rest of this year. District housing units authorized increased 5 percent for the three-month period ending in April compared with a year ago. However, bank directors report that homebuilding is slower in North Dakota and rural parts of Montana.
Consumer Spending and Tourism
Consumers haven't slowed their spending at retail stores. A major Minnesota-based electronics retailer reports that year-to-date April same-store sales in district states were up 7 percent to 12 percent compared with a year ago. A chamber of commerce official in northwest Wisconsin reports that retail sales are above year-ago levels. New car and truck registrations in South Dakota are up over 20 percent for April compared with a year ago, while registrations in North Dakota remain flat.
Prospects for summer tourism are bright. A tourism official in the Upper Peninsula of Michigan has received higher-than-normal inquiries about summer travel. Tourism in the Duluth, Minn., area is currently 8 percent to 10 percent above year-earlier levels and is expected to remain strong throughout the summer. A chamber of commerce representative in central Montana projects tourism to increase 3 percent to 4 percent in the area compared with a year ago; however, reservations are down from last year at Glacier National Park.
Manufacturing
Manufacturing in the Ninth District remains robust. A recent survey by Northern Michigan University of manufacturers in that area indicates strong growth in sales, employment and capital spending. A May purchasing manager survey by Creighton University indicates strong growth in South Dakota, slower growth in North Dakota and a slowdown in Minnesota. As evidence, sales are strong at a South Dakota plastic product firm. In addition, sales are up 10 percent to 15 percent compared with a year ago at a Minnesota electronic equipment producer, and a fabricated metal products company reports full production and strong sales. However, a Wisconsin food and kindred product manufacturer reports lower sales due to a shortage of labor.
Mining and Energy
The iron ore and platinum industries continue to operate at near capacity. An iron ore industry spokesperson reports full production at nearly all iron ore mines. However, a steel company announced the closing of one of the oldest iron ore mines in the United States. The northern Minnesota mine, which currently produces about 7 million tons a year and has 1,400 workers, will close next year. Other district mines are expected to meet the steel company's need for iron ore. March year-to-date iron ore consumption was 13 percent above year-ago levels, while March inventory levels were down 17 percent. Meanwhile, a Montana mining industry spokesperson reports platinum mining is at full production, with a new mine under development and scheduled to be in production within two years.
Meanwhile, Ninth District oil exploration continues at a strong pace in response to high petroleum prices. In May, eight rigs were operating in North Dakota compared with two a year ago, and Montana rig operations increased to six compared with three a year ago.
Agriculture
"Increased cattle prices have reduced ranchers' debt and improved the local economy," reports a South Dakota agricultural lender. Farmers' financial condition continues to improve, based on preliminary results of the Ninth District's second quarter (May 2000) survey of agricultural credit conditions. Loan repayments have improved as 77 percent of respondents report average or above-average levels of loan repayments compared with 43 percent a year ago. In addition, farm income improved as 53 percent of respondents reported average or above-average farm income compared with 18 percent a year ago.
Moreover, farmers had a productive spring. The U.S. Department of Agriculture reports that district spring planting and crop progress is significantly ahead of the five-year average. In addition, due to rain in May and early planting, most district crops are in good condition. The U.S. Department of Agriculture reports that 86 percent of the South Dakota corn crop and 64 percent of the Minnesota soybean crop are in good-to-excellent condition.
Employment, Wages, and Prices
Labor markets remain tight, yet many employers continue to plan expansions. A Minneapolis area health care facility reports difficulty finding skilled workers, as they look for 40 to 60 new employees. This summer, businesses expect to hire large numbers of seasonal workers. "I can't imagine a 16- or 17-year-old trying to get a summer job, not being able to get one," said a Wisconsin labor analyst. A Minnesota real estate management company reports that some stores are delaying opening due to a lack of qualified workers. According to a survey of employers conducted by a temporary-services agency, 36 percent of Minneapolis-St. Paul firms expect to increase workers this summer, and 12 percent will reduce staff. These results are down from a year ago when 47 percent of firms expected to increase staff and 2 percent predicted reductions.
Employers are still paying higher wages to attract workers. Electrical workers in St. Paul negotiated for wage increases over $2 per hour, in part to cover rising health care costs. Wages for hired field and livestock workers on district farms were up around 3 percent in April compared with a year earlier. A member of the advisory council on small business, agriculture and labor reports higher compensation costs, bigger investments in labor-saving technology and greater use of temporary services.
Some price increases were noted, especially for petroleum, construction materials and housing. According to an informal survey of manufacturers in the Dakotas, Minnesota, and Wisconsin, about 60 percent of respondents noticed increases in input prices, while 50 percent expect to increase product prices about 2 percent to 5 percent. Paper and construction material prices are up, including a 15 percent hike in asphalt, according to a bank director. A Minneapolis-St. Paul apartment owner plans to raise rents 8 percent to 10 percent in June, the second increase of the year.
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