The Midwest economy grew modestly during the first quarter. Employment in the region increased by 317,000 jobs during the 12 months ending February 1999, a 1.3-percent gain. Unemployment rates were below the national average in all States of the region. Chicago added almost 100,000 new jobs during the 12-month period, with business services, retail trade, and construction accounting for two-thirds of the gain. Employment growth in Michigan for 1999 and 2000 is forecast by the University of Michigan to average about 2 percent annually, boosted by increased automobile production and a healthy construction industry. Minnesota's construction sector has been a major factor in the State's growing economy, with employment up 10 percent over last year.

Home construction in the Midwest was relatively strong in the first 3 months of 1999. Building permits were issued for 138,001 single-family homes, an 8-percent increase compared with the first quarter of 1998, which had been the highest first-quarter volume of the decade. All States posted gains. Wisconsin had the largest percentage gain, 15 percent (4,066 homes), while Michigan had the largest number of units (7,906).

In Minnesota the Builders Association of the Twin Cities reported that continued strong demand for new homes in all price ranges kept construction at high levels during the first 3 months of 1999. Building permits were issued for 3,341 new homes in the first quarter of 1999, a 23- percent increase. Builders were encouraged by the high turnout of prospective buyers at the Parade of Homes Spring Preview held throughout the metropolitan area in March and they expect home construction and new sales to remain brisk this year. The hot sales market saw a record 50,500 existing home sales in 1998, and sales in the first quarter of 1999 were 16 percent greater than in the first 3 months of last year.

Ohio's sales markets also showed strength in 1999. During the first 2 months of the year, total sales for both new and existing homes totaled 4,800 in Cincinnati and 5,100 in Cleveland, increases of 12 and 6 percent, respectively, over the same period in 1998. Demand in Cleveland for new single-family homes in close-in locations is increasing. Beacon Place in the Fairfax neighborhood includes both townhouses and single-family detached homes, with prices starting at $125,000 and $250,000, respectively. In the adjoining Hough neighborhood, where homes rarely sold for more than $25,000 only 5 years earlier, new homes are selling at prices similar to those in Beacon Place.

Chicago's sales market remains strong following a very good 1998. About 160,000 new and existing homes were sold in the metropolitan area last year, a 15-percent increase compared with 1997. Single-family building permits were up 13 percent to 5,425 units through March 1999. Despite the increase in homebuilding in the city of Chicago, the faster pace of sales activity has created one of the tightest markets in recent memory. The Chicago Association of REALTORS^® reported that existing home sales in the first 3 months of 1999 were 15 percent greater than during the same period in 1998, while the median sales price was up 10 percent over last year to $153,500.

Apartment markets generally remain in good condition throughout the Midwest with occupancy in the 92- to 97-percent range as of the first quarter of 1999. Multifamily building permit activity in the first 3 months of the year was up 5 percent above 1998's level for the same period, and the 10,839 units permitted made it one of the highest first-quarter totals of the decade.

The Minneapolis-St. Paul area rental market remains extremely tight, with apartment vacancy rates of less than 3 percent and rent increases of 5 percent common. Multifamily construction activity remains relatively low, with permits for the first 3 months totaling 730 units.

Cincinnati's rental market is balanced. Several local surveys of the apartment inventory reported high occupancies and vacancy rates at or below 5 percent in most developments. New apartment units near Procter & Gamble's $1 billion plant expansion in northeast Deerfield Township are leasing up quickly at rents averaging $850 a month. A survey by CB Richard Ellis reports that 5,500 new apartment units are expected to enter the market in the next 2 years. Units in new apartment developments on both the city's east and west sides are absorbed quickly. Rents for new two-bedroom units average approximately $600. Downtown Cleveland continues to experience strong demand for loft apartments, particularly in the Warehouse District, where rental vacancies were in the 2- to 4-percent range as of January 1999 and rents were increasing 4 to 5 percent annually.

Developer interest in housing for seniors continues to grow throughout the region. In suburban Chicago, Marriott Senior Living Services is building an assisted-living facility in Orland Park and plans another in neighboring Tinley Park. In Barrington in northwest Cook County, construction has begun on an $81 million seniors complex with 260 independent-living condominiums and an adjacent 140-unit assisted-living community. Almost two-thirds of the 1,100 new tax-credit units built in the city of Chicago last year were congregate housing for the elderly. Most of these projects are targeted to frail elderly who can still live in relatively independent settings. There is concern that the Milwaukee market for seniors is approaching market saturation, particularly along the affluent North Shore, where several upscale projects are under construction and several more are in the planning stage.

Spotlight on Rochester, Minnesota

Rochester is one of the fastest growing economies in the Midwest region. The area is consistently mentioned for its livability in magazine articles, including one that listed the city among the top three small cities in the Nation. Population in the metropolitan area as of July 1998 was 116,700, up 9.6 percent since 1990. The area is home to the world-famous Mayo Clinic and to a large IBM research and development and manufacturing facility. Between 1993 and 1995, both employers were involved in staff reductions.

Beginning in 1996 employment growth in the area resumed and has averaged about 4 percent annually during the past 3 years. Unemployment during the past 12 months has consistently been below 2 percent. The big gains in high-technology manufacturing, health services, and construction boosted total employment to 77,900 during the 12 months ending in February 1999. The Mayo Clinic, its associated hospitals, and IBM employ some 25,500 persons.

The area's strong growth appears ensured for the short run. The Mayo Clinic alone is expected to add 3,000 jobs during the next 3 years as the result of an expansion that includes 11 buildings. The Mayo Clinic also plans to erect a nine-story complex adjacent to its downtown campus. In addition, a variety of new office, warehouse, and industrial structures are under construction, as well as several extended-stay hotels that will accommodate anticipated demand resulting from the expansion. Builders have had to scramble for workers in one of the region's tightest labor markets.

The market for existing homes has been very active in the Rochester area, with 3,307 homes sold in 1997 and 2,807 sold in 1998. Demand far exceeds supply, particularly for homes in the $80,000 to $120,000 price range, in which homes are selling for more than list price. The market is more balanced in the $140,000 and higher range. New home construction also has been strong in the metropolitan area for the past 3 years. Single-family building permit activity has steadily increased from 377 units in 1995 to 752 homes in 1998. In the first quarter of 1999, builders took out permits for 119 single-family units, up 11 percent from the first 3 months of 1998.

The area's rental housing market is very tight, with apartment vacancy rates around 1 percent and rents increasing 9 percent or more when units turn over. Production of multifamily housing in the metropolitan area has averaged a little more than 225 units annually for the decade. The city government is studying various incentives for developers to increase the supply of affordable rental housing. The old Art Deco city hall was recently converted into a 22-unit rental development with financing from Federal Housing Administration (FHA) mortgage insurance. A 144-unit development, Essex Place, also FHA-insured, is under construction. Other projects are planned, including both high-rent townhouses near the IBM campus and tax-credit projects.

The market for seniors housing in the Rochester area has recently been very active. Two complexes for the elderly are under construction: a 66-unit assisted-living community and a continuum-of-care development with 155 independent-living units and 74 assisted-living units.