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Economic growth in the Ninth District remains steady. The energy and commercial real estate sectors continue to expand at a solid pace, although the growth of tourism and manufacturing as well as consumer spending remains slow. The financial condition of most district farmers is improving. Meanwhile, housing construction levels and iron mining production are decreasing. Labor markets are still tight, while wages are increasing at a moderate pace. Overall price increases are moderate, but significant increases are noted for energy, transportation and hotel room rates. Lumber prices are down significantly.
Construction and Real Estate
The pace of commercial construction activity has picked up since the last report. Building contracts awarded in the Dakotas and Minnesota increased 4 percent for the three-month period ending in October compared with the same period last year. Commercial construction is strong in the La Crosse, Wis., area, according to a bank director.
However, housing units authorized were down slightly in the district for the three-month period ending in October compared with a year earlier. Real estate loan demand is flat to down in several parts of North Dakota, said a bank director. In contrast, due to low rental property vacancy rates in Sioux Falls, S.D., 615 multifamily units were authorized during the first nine months of 2000, up from 218 units in 1999. The average sales price of a home in the Duluth, Minn., area, was up about 8 percent for the first nine months of 2000 compared with last year.
Consumer Spending and Tourism
Retailers report modest growth this fall, but are optimistic for holiday sales. A major Minneapolis-based department store retailer noted that October same-store sales were up 3.5 percent compared with a year ago. A mall in Bismark, N.D., reported sales up 3 percent to 5 percent in October compared with a year earlier. A Minneapolis area mall reports sales flat for October compared with a year ago, but improvements were noted as the holiday season began. Sales on the Friday following Thanksgiving started out strong at a Minneapolis-based electronic retailer, with 500 people waiting outside for one store to open, according to a local news article. Thanksgiving weekend sales at a Duluth mall were about the same as a year ago, but sales met expectations for most store managers.
Fall tourism activity was down in some parts of the district, but many businesses are optimistic for the winter season. Fall travel in South Dakota and crossings at the International Bridge at Sault Ste. Marie, Mich., in October were both down 10 percent compared with a year earlier. In contrast, fall travel and lodgings were solid in northern Wisconsin, according to a Chamber of Commerce official. Recent snowfall has resulted in earlier than normal openings for ski hills in South Dakota. A ski resort in northern Minnesota and another in Montana have opened on schedule and report bookings even and up 7 percent, respectively, compared with a year ago.
Manufacturing
Overall manufacturing activity in the district increased, but signs of a slowdown in Minnesota and South Dakota are evident. Based on the preliminary results from the Minneapolis Fed's Annual Business Conditions Survey (conducted in November), half of the manufacturers foresee that 2001 sales will increase, while only 16 percent expect 2001 sales to be less than 2000. In fact, an aluminum enclosure manufacturer plans to expand production at two Minnesota facilities, a screen door producer expanded a western Wisconsin factory, and a northern Michigan medical device company is planning an expansion of its operations. However, an October purchasing manager survey by Creighton University indicated slower manufacturing activity in Minnesota and in South Dakota. As evidence, an auto parts maker announced the closing of a Minnesota engine pistons factory, and a storm door producer announced cutting production at a South Dakota plant. In addition, after 51 years of operations, a Montana lumber mill permanently closed, and two Minnesota oriented strand board paneling mills expect to stay shut down for one month.
Mining and Energy
The palladium and petroleum industries continue to operate at near capacity, while iron ore production is falling. Palladium production is at full capacity, according to a Montana mining official. District oil exploration and production continue at a strong pace in response to high petroleum prices. Meanwhile, a large northern Minnesota iron ore mine is planning to cut production by 12 percent, and a northern Michigan mine temporarily shut down due to falling demand. In addition, a Montana copper mine remains closed due to high energy costs.
Agriculture
"Improved cattle prices, excellent production and high government payments have helped our producers," reported a South Dakota agricultural lender. Farmers' financial condition continues to improve, based on preliminary results of the Ninth District's fourth quarter (November 2000) survey of agricultural credit conditions. Loan repayments have improved, as 84 percent of respondents report average or above-average levels of loan repayments compared with 72 percent a quarter ago. In addition, farm income improved, as 65 percent of respondents reported average or above-average farm income compared with 46 percent last quarter. However, overall costs are up, including higher expenses for labor and fuels. Meanwhile district wheat producers are encountering production problems due to adverse weather conditions.
Employment, Wages, and Prices
Employers still report difficulty in filling positions; however, some indicators suggest easing in the labor market. Hospitals are short on physician specialists in the Upper Peninsula of Michigan, causing longer waiting times for patients. A ski resort in Montana reports low numbers of job applicants, requiring an overseas search for staff. However, despite a low unemployment rate, retail stores in Sioux Falls are receiving sufficient numbers of applicants to fill positions. In Minneapolis-St. Paul, 34 percent of companies surveyed by a major staffing company plan to hire more workers during the first three months of 2001, down from 44 percent a year ago.
Wages are rising at a moderate pace. Hotel workers at two St. Paul hotels will receive 4 percent to 6 percent wage increases during the first year of a new contract. District manufacturing wages increased 2.9 percent for the three-month period ending in September, the lowest rate of increase in 16 months. In an informal survey of manufacturers in the Dakotas, Minnesota and Wisconsin, about 35 percent of respondents reported raising wages in October, down from 70 percent a year earlier.
Price increases were noted in energy, transportation and hotel room rates, with reductions in lumber. Heating costs in Montana are expected to increase as much as 40 percent compared with last year, and many retailers are now assessed a freight surcharge of 4 percent to 8 percent of published rates to meet higher fuel costs, reported a bank director. The average daily room rate for district hotels and motels increased 6.4 percent in September compared with a year earlier. In contrast, framing lumber prices dropped almost 25 percent from the beginning of the year. Only 27 percent of respondents reported increased product prices in an informal survey of manufacturers, down from 55 percent six months ago.
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