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Federal Reserve Districts

Ninth District--Minneapolis

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The Ninth District economy displayed firm growth since the last report. Growth was evident in consumer spending, manufacturing, construction, real estate, energy, and mining. However, agriculture was down slightly and tourism was level. Employment grew moderately, and wage increases were generally modest. Significant price increases were noted in gasoline, home heating oil, and college tuition.

Consumer Spending and Tourism
Overall retail activity increased. A major Minneapolis-based retailer reported same-store sales up 8 percent in March from last year. Sales at a North Dakota mall during the Easter weekend were up 12 percent compared with last year's Easter sales, according to the mall manager. March sales at a Montana mall were about 5 percent ahead of last year, according to the mall manager, who expressed concern about recent higher gas prices. However, gas prices haven't had a noticeable effect on traffic so far. Recent sales and traffic were up slightly at a Minneapolis-St. Paul area mall compared with a year ago.

A representative of a North Dakota auto dealers association described recent sales activity as good overall, but "spotty." For example, a dealer in the northeastern part of the state described last month's sales as the best March ever, while dealers in the western part of the state noted volatile sales. A publication by the Minnesota Automobile Dealers Association reported that new retail light vehicle registrations will likely decline 4 percent in 2005 compared with 2004, but nevertheless finish at historically strong levels.

Late winter tourism activity improved in areas that received more snow. March winter tourism activity in the Duluth, Minn., area was up from last year due to good snow conditions, and convention bookings for the rest of the year look solid, according to an official. In the Upper Peninsula of Michigan, winter tourism was up about 8 percent from a year ago, while winter tourism activity was about level with a year ago in northwestern Wisconsin, according to officials. However, snowmobiling activity was generally down in South Dakota from last year due to a lack of snow.

Manufacturing activity expanded. A March survey of purchasing managers by Creighton University (Omaha, Neb.) indicated increased manufacturing activity in the Dakotas and Minnesota. A steel fabricator in Minnesota noted that business is very strong. In northern Wisconsin, a lumber mill recently completed a $1.5 million equipment upgrade, and business is "moving pretty well." However, the plant manager is concerned about the lack of long-term orders. A plastic parts manufacturer in the Upper Peninsula reported "very brisk" business and tremendous gains in productivity through recent investments in new equipment and automation. However, input costs have been rising fast. Some equipment contacts reported shortages of large tires and certain steel inputs.

Construction and Real Estate
Construction in the Ninth District increased slightly. A 150-unit development was announced in Minneapolis, continuing the condominium construction boom there. Housing units authorized in district states were up 0.3 percent for the three-month period ended February. However, for the same period, contract awards for large construction projects in Minnesota and the Dakotas were down 9 percent compared with a year earlier. In North Dakota, a company announced plans to build a $65 million ethanol plant, with construction to begin this fall. Construction is also set to begin on a $30 million power plant in Butte, Mont.

Real estate activity was brisk. A Fargo, N.D., area Realtor called the market there "hot as a pistol" and said activity was up over last year's strong sales. A study of the Marquette, Mich., area real estate market showed increasing sales and prices and a decrease in selling times, owing to improving regional employment. The office vacancy rate in downtown St. Paul showed signs of improvement, dropping to 24.2 percent from recent highs over 25 percent, with especially strong gains for Class A space.

Energy and Mining
Activity in the energy and mining sectors increased. A large-scale wind energy project is planned for central Montana. Oil and gas exploration and production were about level from late February through late March. Iron ore production continues at capacity. A Montana palladium/platinum mine expects stable production in 2005, and a recently reopened copper mine is ramping up production. The operating mines are performing "exceptionally well" due to strong metal prices, commented a Montana mining official.

Economic activity in the agricultural sector was down slightly. District farmers expect to slightly decrease the acres planted with soybeans and corn from last year and slightly increase wheat plantings. The drought worsened in the western part of the district, as Montana suffered the sixth driest winter on record. Although dry conditions exist, the U.S. Department of Agriculture reports that 66 percent and 42 percent of the winter wheat crop in South Dakota and Montana, respectively, were rated in good to excellent condition, while only 6 percent and 13 percent are in poor or very poor condition.

Employment, Wages, and Prices
Employment increased slightly. Nonfarm employment in district states was up 1.3 percent in February compared with a year ago; employment in Montana increased almost 2 percent. New retail, hotel, and business prospects in the Bismarck, N.D., area will require about 1,500 or more new employees over the next year and a half. In Montana, a cable television and high-speed Internet company recently opened an operations center with 200 employees, which could increase to 300 employees within a few years. In Minnesota, a printing company recently announced expansion plans, and a fastener distributor is planning to establish a new call center. Each project will add about 30 jobs. According to a recent St. Cloud (Minn.) Area Quarterly Business Report survey, 47 percent of respondents expect to increase employment during the next six months, and 10 percent expect to decrease staff. A survey of Minneapolis-St. Paul businesses by a temporary staffing agency found 37 percent of respondents expect to increase employment during the second quarter of 2005, while 7 percent plan to decrease staff. In last year's survey, 32 percent expected to increase employment, while 1 percent planned to make cuts.

However, some layoffs were announced. A major Minnesota-based airline recently announced plans to reduce its fleet and eventually cut up to 900 mechanic jobs. A Minnesota hair care products manufacturer plans to close, affecting 400 to 500 jobs. A plant that produced graphics for automobiles will close in Minnesota by the end of the year, affecting 200 jobs.

Increases in wages were generally modest. State employees in South Dakota will receive a 2.25 percent raise next year, according to recent legislative action. However, a Montana bank director noted significant wage increases for skilled workers in the high tech sector.

Some significant price increases were noted. Minnesota gasoline prices in the beginning of April were up 41 cents compared with last year. A Minnesota servicing company recently reported fuel surcharge increases on deliveries. Home heating oil prices were up by almost 50 percent from a year ago. Tuition for next fall will increase 8 percent in the Montana university system and 5 percent at South Dakota public universities. Steel mill product prices have recently leveled, but were still almost 40 percent above year-ago levels. While the American Farm Bureau reported that overall increases in food prices during the first quarter from fourth quarter 2004 were modest, flour, bacon, apple, and egg prices posted notable increases.

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Last update: April 20, 2005