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Ninth District--Minneapolis

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The broad-based economic downturn continued in the Ninth District. Activity weakened since the last report in consumer spending, tourism, services, construction and real estate, manufacturing, energy, mining and agriculture. Labor markets continued to deteriorate as a number of companies announced layoffs. Overall wage increases remained modest. Prices remained relatively stable since the last report; many prices were lower compared with a year ago.

Consumer Spending and Tourism
Overall retail sales were lower than a year ago. A major Minneapolis-based retailer reported that same-store sales in January were down 3.3 percent compared with a year earlier. A Minnesota-based furniture retailer reported that recent sales continued to lag year-earlier levels. An outdoor goods retailer in Minnesota reported that recent sales were flat compared with last year. Preliminary January sales reports at a Montana mall improved from December levels, according to the manager. A representative of an auto dealers association in North Dakota reported slower activity than last year. Auto dealers in southwestern Montana reported some improvements in sales during January after fairly dismal sales during the last part of 2008. On a positive note, a new anchor department store and a fitness center have helped traffic increase 20 percent in January at a Minneapolis area mall.

Tourism activity was slower than last winter. A ski resort in Montana noted that lodging revenue was down 15 percent compared with a year earlier. A Minnesota ski resort reported that sales were down 15 percent through mid-February, but pre-sales for March and early April have recently picked up. In contrast, good snow conditions have helped buoy tourism activity in western South Dakota.

Services sector activity decreased overall since the last report. Contacts from the legal sector noted a downturn in business. Architects reported continued weak demand. Several media services companies cut back on content. Hospitals reported weakening demand for elective services, but an uptick in emergency services, as consumers are shifting from clinics. However, some information technology firms noted solid demand from companies investing in cost-reduction projects. Several appraisers and mortgage companies noted a big increase in refinance activity.

Construction and Real Estate
Commercial construction activity decreased. January commercial permits decreased in Sioux Falls, S.D. A commercial developer in Fargo, N.D., said activity there had decreased, but the area was faring better than in many others. A Minneapolis commercial real estate firm forecast flat office and industrial construction in 2009 from the previous year. However, developers were optimistic about the impact of the federal fiscal stimulus package. Residential construction decreased slightly. The number of permitted units in Minneapolis-St. Paul was down 7 percent in January from the previous year. The number of January residential permits declined in Sioux Falls.

The commercial real estate market weakened. A Minneapolis-St. Paul commercial real estate firm noted that vacancy has increased for the office, industrial and retail segments; it forecast a decline in lease rates, as it expects newly completed projects to outpace absorption. In Sioux Falls, a commercial real estate agent said the market has softened. Residential real estate remained slow, with possible signs of nearing bottom. January closed sales in Minneapolis-St. Paul increased 2 percent over the previous year; prices were down more than 24 percent, as more than half of sales were due to lender-mediated foreclosure or short-sale activity. A real estate agent in Fargo described the market there as slower than in recent years, but still brisk overall. A bank director in western Montana said mid-priced homes were still selling well, but luxury homes were taking longer to sell or were pulled from the market.

Manufacturing activity decreased since the last report. A January survey of purchasing managers by Creighton University (Omaha, Neb.) indicated that activity significantly decreased in Minnesota and South Dakota, and slightly decreased in North Dakota. Several manufacturers decreased production since the last report. A Minnesota window maker announced production cuts, a fiberglass producer plans to close a plant and a metal cab maker reduced production. In South Dakota, a respirator plant temporarily shut down and a computer component producer plans to shut down.

Energy and Mining
Activity in the energy and mining sectors fell since the last report. Mid-February oil and gas exploration declined significantly from early January. Several ethanol plants went up for auction. A Montana metals mine recently reduced production.  A large cooperative energy utility noted decreased demand after adjusting for weather patterns. 

Agricultural conditions deteriorated since the last report. Results of the Minneapolis Fed's fourth-quarter (January 2009) survey of agricultural credit conditions indicated that lenders expect overall agricultural income and spending to decrease significantly in the first quarter of 2009. "The agriculture economy is looking a little tough due to lower prices in both the livestock and grain markets," commented a Montana respondent to the survey. Meanwhile, milk prices dropped significantly since last December.

Employment, Wages and Prices
Labor markets continued to deteriorate, with a number of companies announcing layoffs. After cutting 2,400 jobs companywide in the fourth quarter, a Minnesota-based manufacturer indicated that more cuts are likely in 2009. Similarly, a Minnesota-based telecommunications firm that laid off 350 employees in October said more layoffs were to come. Also in Minnesota, a window maker plans to eliminate 50 positions and temporarily lay off about 400 workers, a cleaning and sanitizing products maker is cutting 200 jobs and a financial services company is cutting 100 jobs. In addition, a snowmobile and utility vehicle manufacturer announced plans to lay off more than 110 employees, while a nearby competitor will lay off 100 employees. Falling oil prices led to about 150 layoffs in western North Dakota. A company that makes processing equipment for the semiconductor industry recently announced plans to lay off 200 employees in Montana after cutting 100 workers in November. A job service center in Montana reported seeing many more people per day in January than in the past, and job seekers were less selective about job openings.

Overall wage increases remained modest, and examples of pay cuts or freezes were noted. Some companies that announced layoffs reported that executives and, in some cases, other employees received cuts in their compensation packages. State workers in South Dakota recently accepted a freeze in pay levels.

Prices remained relatively stable since the last report; many prices were lower compared with a year ago. Minnesota gasoline prices in mid-February were about 35 cents higher than at the end of December, but were about $1 lower than a year ago. Metal prices remained much lower than a year ago after decreasing sharply last fall.

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Last update: March 4, 2009