August 9, 2000 Federal Reserve Districts Ninth District - Minneapolis

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Economic activity in the Ninth District is steady. Manufacturing, energy, and platinum mining activity is at about the level last reported, while growth in consumer spending has softened. Meanwhile, summer tourism shows signs of strength, and commercial construction continues at a robust pace. In agriculture, while overall crop growing conditions are good, crop prices remain low. Labor markets are still tight as businesses continue to report wage pressures, and some price increases are noted, primarily in housing and natural gas. Construction and Real Estate Commercial construction remains strong. Building contracts awarded in Minnesota and the Dakotas increased 14 percent for the three-month period ending in May compared with a year earlier. A real estate firm reports that downtown Minneapolis tenants are absorbing recently built space faster than anticipated. Industrial leasing activity in the Minneapolis/St. Paul area is as strong as last year, according to an area property manager. Homebuilding activity is slightly softer since the last report. District housing units authorized were down 6 percent for the three-month period ending in June compared with a year earlier. Nevertheless, a Minneapolis/St. Paul builders association representative foresees homebuilding finishing this year above the robust levels averaged in 1999. Demand for new apartment developments is strong in the Minneapolis area as apartment vacancy rates are below 2 percent, according to a real estate firm. Residential construction is stronger than last year in Sioux Falls, S.D., according to a chamber of commerce representative. Manufacturing Overall, manufacturing activity in the district is at about the level reported in June. A construction materials manufacturer, a plastic product company, a fabricated metal producer and an electroplating corporation all report sales about the same level as a year ago. A June survey reported in the St. Cloud State University Quarterly Business Report reveals an increase in the local manufacturing work week from March but a reduction in the number of new business start-ups. A June purchasing manager survey by Creighton University indicates a slowdown in North Dakota and Minnesota, but strong growth in South Dakota. Mining and Energy The iron ore and platinum industries continue to operate at near capacity. May iron ore consumption was 13 percent above year-ago levels, while May inventory levels were down 18 percent from a year earlier. A spokesperson for a major iron ore producer reports full production, but is concerned about softening demand and higher natural gas and electricity costs. In addition, mining companies are spending $15 million to study the feasibility of a platinum, palladium, gold, copper, nickel, and silver mine in northern Minnesota. Meanwhile, District oil exploration and production continue at a strong pace in response to high petroleum prices. As a result, North Dakota mining and oil extraction taxable sales and purchases were up 45 percent in the first quarter of 2000 compared with year-earlier levels, although this represents only 0.4 percent of total North Dakota taxable sales and purchases. Agriculture Crops in most parts of the District show solid growth, although prices remain low. The U.S. Department of Agriculture reports corn and soybean progress ahead of the five-year average for most District states. Meanwhile crop conditions are rated good to excellent for 77 percent, 82 percent, and 78 percent of the Minnesota, North Dakota, and South Dakota corn crop, respectively. However, the USDA lowered its projections of 2000/2001 prices for corn, wheat, and soybeans from their already depressed levels. Meanwhile, cattle producers are gaining from strong prices and low feed costs. However, higher fuel costs and drought conditions in central Montana are tempering rancher enthusiasm. The USDA reports topsoil moisture as short or very short for 75 percent of Montana. Some central Montana ranchers are culling cows, according to a bank director. Consumer Spending District retail sales have softened since the last report. A major Minneapolis-based department store retailer noted that June same-store sales were down 1 percent compared with a year ago, while a major Minnesota-based electronics retailer reported that year-to-date June same-store sales in most District states were flat compared with a year ago. June mall sales in Duluth, Minn., and Fargo, N.D., were at about the same level as last year, but are down significantly in Bismarck, N.D., according to mall managers. New car and truck registrations in South Dakota were down 8 percent in May and June compared with last year, but increased 5 percent in Montana and 14 percent in North Dakota. Retail sales are expected to increase in Minnesota as $635 million in state surplus money was distributed to 2.4 million taxpayers in July. Most tourism officials and businesses claim that higher gasoline prices have not hampered tourism activity. Glacier National Park has had more visitors this year than last year at this time, and Montana hotel operators expect a good season. A tourism official in the Upper Peninsula expects a 5 percent increase for the summer compared with a year ago. In contrast, hotel occupancy in South Dakota was down 3 percent for June compared with a year earlier, and visits to Mount Rushmore were off 5 percent. Employment, Wages, and Prices Labor markets remain tight. According to a recent survey by the Minnesota Department of Economic Security, four openings exist for every 100 Minneapolis/St. Paul jobs. With the unemployment rate just over 2 percent, not all openings can be filled. In Montana, high turnover in low-skilled workers is reported. To draw applicants, a fast food restaurant is offering free meals in exchange for job applications. One sign of labor market softening was reported in the June St. Cloud State University survey, where fewer surveyed businesses expect to add workers in the next six months, almost 40 percent compared with 58 percent in March. Employers continue to increase wages. According to an informal survey of manufacturers in the Dakotas, Minnesota, and Wisconsin, about 50 percent of respondents have increased wages about 2 percent to 5 percent to retain and attract workers. Teachers in South Dakota on average received a 7 percent hike in pay compared with a year ago. Some major Minnesota law firms are paying new associates salaries 14 percent to 35 percent higher than last year. Some price increases are noted, especially in housing and natural gas. According to an informal survey of manufacturers in the Dakotas, Minnesota, and Wisconsin, about 35 percent of respondents expect to increase product prices about 2 percent to 5 percent. About 42 percent of respondents to the June St. Cloud State University survey expect to raise prices over the next six months, verses 32 percent in March. Apartment rental rates in the Minneapolis area are up over 10 percent compared with last year. Residential natural gas costs increased almost 6 percent in June compared with a year ago. Return to top St. Louis Kansas City