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Economic growth in the Ninth District is weakening. Manufacturing levels and mining production are decreasing. Consumer spending is flat, and housing construction and agriculture continue to grow at a slow rate. Some signs of strength persist: The energy, tourism and commercial real estate sectors are expanding at a solid pace. Labor markets are still tight, although several layoffs were announced. Wages are increasing at a moderate pace. Overall price increases are moderate, but significant increases are noted for energy, residential rents, health care and package delivery.
Construction and Real Estate
Construction continues to grow at a moderate pace. Building contracts awarded in the Dakotas and Minnesota increased 13 percent for the three-month period ending in November compared with the same period last year. A real estate consultant in Sioux Falls, S.D., projects strong demand in 2001 for retail space and flat demand for office and industrial buildings. Vacancy rates in the third quarter of 2000 for office buildings in the Minneapolis-St. Paul area have reached a four-year high at 8.8 percent. Meanwhile, a Minneapolis-St. Paul construction company representative reports growth in construction activity has recently decreased to the moderate levels of 1997.
Homebuilding increased slightly from the last report. Housing units authorized were up 2 percent in the district for the three-month period ending in November compared with a year earlier. Housing permits in the Minneapolis-St. Paul area were expected to finish 2000 at near record levels, and favorable mortgage interest rates are boosting home sales, according to a mortgage consultant. In contrast, almost 50 percent of respondents in the Minneapolis Fed's annual business conditions survey conducted in November expect housing starts to decrease in 2001.
Consumer Spending and Tourism
Consumer spending in the district was flat to down slightly compared with last year. Registrations of new cars and trucks are about even with last year in North Dakota and down 6 percent in South Dakota. A major Minneapolis-based department store retailer noted that December same-store sales were flat compared with last year. Sales were off almost 10 percent for December compared with a year ago at a North Dakota mall. Last-minute purchases brought December mall sales in Duluth, Minn., from a decrease of 9 percent to about even with a year ago. Almost 30 percent of respondents to the Minneapolis Fed's business conditions survey expect consumer spending to decrease in their communities in 2001, up from 15 percent in last year's survey. Three major national retailers announced the closing of several unprofitable stores across the district.
An early start to winter recreation activities has boosted tourism. A ski resort in Montana reports bookings for January and February up 4 percent from a year ago. Winter sports participation in South Dakota is up 25 percent in December compared with a year earlier. An official reports that winter tourism in the Upper Peninsula of Michigan was ahead of last year for November and December, but softer during the holidays.
Manufacturing
Overall manufacturing activity in the district decreased. A December purchasing manager survey by Creighton University indicated slower manufacturing activity in Minnesota and in South Dakota. As evidence, a Minnesota automobile assembly plant will stop production for one week in January. In 2001, a refrigeration, air conditioning and heating equipment company will shut down a Minnesota factory in the first quarter, and an industrial equipment manufacturer in Minnesota plans to reduce production. In addition, a boot producer cut production at a western Wisconsin plant. A Montana cement company and a cardboard box manufacturer temporarily shut down due to very high electricity costs. However, due to heavy snowfall, a Minnesota snow removal equipment manufacturer sold out its inventory two months earlier than normal.
Mining and Energy
The energy sector continued to expand, while the mining industry contracted. District oil and natural gas exploration and production increased as prices for these products remain at high levels. Meanwhile, due to softening demand, high electricity costs and low commodity prices, mining production is decreasing. A Minnesota iron ore mine shut down earlier than expected and another two mines reduced production due to softening demand. A Montana aluminum smelter cut production 50 percent, and a copper mine remains shut down due to high electricity prices. However, palladium/platinum production remains at full capacity, according to a Montana mining official.
Agriculture
Snow and prices paint a mixed picture for agriculture. Heavy snow cover across most of the district slightly reduced the likelihood of another summer drought and aided the winter wheat crop, but added stress to livestock producers. In addition, the U.S. Department of Agriculture predicts continued low corn, wheat and soybean prices in 2001 but expects healthy livestock prices. Meanwhile, dairy producers have been buffered from lower milk prices by a federal government dairy market loss-assistance program.
Employment, Wages, and Prices
Labor markets remain tight, although several companies reported layoffs in December and early January. A northern Minnesota mine closed affecting about 1,000 workers and a direct marketing firm is laying off 550 warehouse workers in St. Cloud, Minn. A Minneapolis area-based online education firm reduced staff by 14 and placed its remaining 120 employees on a two-week unpaid leave; an e-commerce business will lay off 91 employees, almost half its workforce. A Minnesota printing and service firm is reducing staff by 50 jobs. A footwear company in La Crosse, Wis., recently laid off 200 employees. The upcoming shutdown of a Montana lumber mill will leave 140 out of work.
Still, several companies are looking for new employees. A new high-tech company in Rapid City, S.D., plans to hire 100 employees in the two years. The construction of a poultry litter-fired power plant in western Minnesota will require 300 workers. Some manufacturers are expanding outside the district due to a lack of available labor, according to a bank director.
Wages continue to increase at a moderate pace. About three of five respondents to the Minneapolis Fed's business conditions survey expect a modest increase in wages for their communities in 2001. A December survey of manufacturers in the Dakotas, Minnesota and Wisconsin shows that about 48 percent of respondents have raised wages over the past two months compared with 53 percent a year ago.
Overall price increases are moderate, but significant increases are noted for energy, apartment rental rates, health care and package delivery. The cost to heat homes this winter has doubled in many district locations. Apartment rental rates increased 11 percent in the Minneapolis-St. Paul area in December compared with a year earlier. A hospital in La Crosse is increasing rates by an average of 12 percent over a year ago, the largest single increase in over a decade. Two major package delivery companies are raising rates up to 5 percent. A December St. Cloud State University Quarterly Business Report survey showed that 23 percent of respondents in central Minnesota noted increases in product prices, down from 29 percent a year ago.
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St. Louis