September 19, 2001 Federal Reserve Districts Ninth District - Minneapolis

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Overall economic activity in the Ninth District is about even with the levels last reported. Manufacturing and commercial real estate are down slightly. Tourism and agriculture are mixed. Mining and energy are about even, while residential construction and consumer spending are up slightly. Labor markets have loosened because of slow job growth and additional layoff announcements. Overall wage and price increases are moderate, with the exception of reports of energy surcharges and higher health insurance costs, and decreases in consulting fees. Construction and Real Estate Construction activity in the district is down slightly from a year ago. Construction contracts awarded in Minnesota and the Dakotas decreased 4 percent for the three-month period ending in July compared with the same period last year. A commercial real estate firm reported a significant increase in office and industrial sublease space in Minneapolis-St. Paul during the first half of 2001 compared with a year earlier, and expects slow office space absorption during the second half of 2001. A representative of another Minneapolis area commercial real estate firm noted slow rental activity for June and July, but an increase in activity during August. District homebuilding is picking up and sales are strong. Authorized housing units increased 15 percent in the district for the three-month period ending in July compared with a year earlier, boosted by a 27 percent gain in authorizations for multi-unit dwellings. Sales of both existing and new homes could set a record this year in Rochester, Minn., according to a local economic development report. The number of home sales in Minneapolis-St. Paul increased 15 percent in July compared with a year ago. Consumer Spending and Tourism Overall district retail sales were up slightly compared with a year ago. Consumer sales were boosted in Minnesota as 2.4 million state sales tax rebates were mailed to residents in August at an average of $330 per check. A major Minneapolis-based department store noted that overall same-store sales in August were up 2.4 percent compared with a year earlier. Managers at a mall in Montana and a mall in North Dakota noted strong back-to-school sales. In contrast, another North Dakota mall manager commented that recent sales were down 2 to 3 percent compared with last year. Recent auto sales are generally steady compared with last year in South Dakota, according to a representative of an auto dealer association. Overall tourism activity is mixed. Motel and campground occupancies were down about 3 percent in July compared with a year ago in South Dakota. Montana tourism is steady compared with a year ago, although visits are down at Glacier and Yellowstone National Parks. According to a recent survey of resorts, hotels and other tourism businesses in Minnesota, summer occupancy rates were generally lower than a year earlier in Minneapolis-St. Paul and the southern part of the state, but were higher than a year earlier in the northern part. A bank director reported strong tourism activity in North Dakota. Manufacturing Overall manufacturing activity is slightly down. An August survey of purchasing managers by Creighton University indicated stable manufacturing activity in South Dakota and decreases in Minnesota and North Dakota. As evidence, a beverage-dispensing equipment manufacturer announced it would shut a Minnesota factory next year. Four circuit board manufacturing plants will be closed in Minnesota. A construction equipment producer temporarily shut down two facilities in North Dakota. However, preliminary results of a survey of manufacturers by state agencies in Minnesota, Montana and South Dakota reveal that a third of manufacturers surveyed expect increased orders in the second half of 2001 over the first half of the year, while about a quarter of respondents expect lower orders. A Minnesota machine tool manufacturer reported strong sales in August. A Montana packaging producer is expanding production and a South Dakota label producer is expanding capacity. An Upper Peninsula pet supplies manufacturer reports strong demand for its products. Mining and Energy Activity in the energy and mining sectors has leveled. District oil and natural gas exploration levels remain about the same as last quarter. Meanwhile, most iron ore mines are back at full production after reduced production earlier this summer, although a mine in the Upper Peninsula was temporarily shut down due to a fire. A Montana copper mine and an aluminum smelter are still closed. However, a Montana platinum/palladium mine remains at full production. Agriculture Agricultural conditions are mixed across the district, according to the Ninth District's third quarter (preliminary August 2001) survey of agricultural credit conditions. Strong forward contract prices for calves bode well for the South Dakota economy, said one ag lender. South Dakota lenders expect farm income to improve as 77 percent of lenders reported average to above average income levels compared with only 48 percent last quarter. "Milk income is strong, which is completely opposite of a year ago. This has led to more rapid repayment of loans and less operating money borrowed," reported a Wisconsin lender. Meanwhile, Montana and Minnesota bankers are concerned about the effect of adverse weather conditions on producer financial health. Over two-thirds of Montana survey respondents reported that their agricultural customers had below normal farm income over the past three months compared with a third of lenders in last quarter's survey. Minnesota bankers report that 35 percent of farm customers are at their debt limit compared with 28 percent last quarter. Employment, Wages, and Prices Some reports of lay-offs were reported as labor markets continue to show signs of easing. For example, a computer component manufacturer announced plans to lay off 500 workers at plants in Minnesota, South Dakota and Wisconsin. Another computer-related firm plans to close a South Dakota call center with 350 employees. District employment grew only 0.6 percent for the three-month period ending in July compared with a year earlier, the slowest rate since 1991. The number of initial claims for unemployment insurance benefits filed in Minnesota during July was 70 percent higher than a year earlier. Due to easing in labor markets, several restaurant managers noted an increase in the quantity and quality of applications. In contrast, 9 percent of South Dakota's registered nurse positions are vacant. Increases in wages and salaries are modest. District manufacturing wages increased 2.9 percent for the three-month period ending in July compared with a year ago. Only 24 percent of respondents to an informal survey of companies in Minnesota, Wisconsin and the Dakotas reported higher wages during July compared with 58 percent a year ago. However, wages offered to newly hired workers placed through South Dakota career centers increased 6.9 percent during the fiscal year ending June 30, 2001, compared with the previous year. Overall price increases remain modest, with increases noted in energy surcharges and insurance rates and decreases noted in consulting services. According to the informal survey of companies in Minnesota, Wisconsin and the Dakotas, only 38 percent of respondents reported higher input prices in July, down from 55 percent a year ago. Some hotels in the district have recently added $2 to $4 surcharges per night due to higher energy costs. Health insurance rates for employees of a Minnesota county are 13 percent higher than last year. In contrast, fees for some business consulting services have recently dropped as much as 30 percent in Minneapolis-St. Paul. Return to top St. Louis Kansas City