A steady wind continues to blow through the sails of the Ninth
District economy. The Minneapolis Fed's regional forecasting models
predict a growing economy through 2001. Employment will expand over
the next 18 months, but at slightly slower rates than in 1999. Wage
rates are climbing and some product prices are increasing, notably
for oil and gas. Agricultural conditions show continued improvement
for livestock, as cattle and hog prices remain at profitable levels.
However, crop prices are depressed, placing downward pressure on
District nonfarm employment growth year-to-date through April increased
2 percent compared with the first four months of 1999. Construction,
the highest employment growth industry, expanded 6.9 percent. Employment
in services and retail/wholesale trade grew faster than the district
average, while employment in government and transportation grew
slower. Manufacturing employment decreased 0.1 percent, continuing
last year's trend when manufacturing employment dropped 0.3 percent,
indicating that workers are shifting from manufacturing to service
and retail jobs. The model predicts that district nonfarm employment
will finish the year 1.8 percent above year-end 1999. Employment
is predicted to grow at the same pace or slightly slower in most
district states for 2001 compared with 2000, except for increased
growth in South Dakota and Wisconsin (see District forecast).
In order to attract qualified workers, employers are paying higher wages.
Wages for district manufacturing jobs increased 3.1 percent for the three-month
period ending in April compared to a year earlier, which continues a three-year
trend of accelerated wage growth. Since January 1997, monthly district
manufacturing wages increased on average over 3 percent compared to a
year earlier; whereas, from January 1993 through December 1996, wages
increased 2.5 percent.
Increases in oil prices have spurred producers to boost output.
In North Dakota, 12 oil rigs were in operation during April, compared
with one rig a year ago. Six rigs were in operation in Montana,
compared with four a year ago.
Higher energy costs have also contributed to increases in the U.S.
Consumer Price Index (CPI). For the first five months of 2000, the
CPI increased at a seasonally adjusted annual rate 3.6 percent,
as the energy index component increased 16.5 percent. In many areas
of the district, reports indicate that while prices for many goods
and services remain steady, prices for petroleum, construction materials,
health care and housing are increasing faster than the CPI.
District homebuilding began the year in strong shape. Housing units
authorized increased 18 percent in district states during the first
quarter of 2000 compared with last year, while total existing home
sales increased 7 percent. Home prices have climbed in response
to increased demand and higher building costs. In Minneapolis-St.
Paul, the median sales price for existing homes climbed 9 percent
year-to-date through May compared with the first five months of
1999. Rising interest rates will continue to raise the cost of home
mortgages; nevertheless, the model forecast predicts increases in
housing units authorized in 2000 for most district states.
Low crop prices worry farmers, but livestock producers are in
The mild winter and spring gave farmers a head start on this year's
crop, while good livestock conditions provided ranchers with some
early-year profits. Spring planting was completed earlier than the
five-year average, according to the U.S. Department of Agriculture
(USDA). In addition, crop progress is ahead of the five-year average.
Meanwhile, low feed prices, good spring calving conditions and healthy
livestock prices created a good recipe for improved financial conditions
Looking forward, low crop prices will likely have a negative effect on
district farmers again this year. Record U.S. soybean planted acreage
and large stocks are expected to keep prices in the $4 to $5 per bushel
range, reports the USDA. Meanwhile, increases in projected corn acreage
and yields in tandem with small increases in demand could put farmer corn
prices at about $1.65 to $2.05 per bushel. However, reduced wheat plantings
and slightly higher demand are expected to increase wheat prices 15 cents
per bushel to $2.65.
Agricultural producers face issues surrounding genetically modified
crops. Based on a March 2000 USDA survey, 25 percent of this year's
U.S. corn crop and 52 percent of the soybean crop are varieties
enhanced by biotechnology. This increased variety of crops has agricultural
producers, transporters and processors scrambling to develop processes
to separately handle genetically modified foods.
Unlike the outlook for crops, the outlook for livestock is good
because of increased domestic and international demand, keeping
prices at a healthy level. Although red meat supplies are at near
record levels, the strong economy is spurring demand. Fed-cattle
prices are expected to average in the lower $70s per hundred weight
in 2001, up from near $70 this year according to the USDA. In addition,
hog prices in 2001 are expected to average in the mid-$40s, about
the same as in 2000.
Compiled by Rob Grunewald,
Associate Editor-Statistics, and
Tobias Madden, Regional Economist