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Federal Reserve Districts

Ninth District--Minneapolis

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Ninth District economic activity decreased slightly in March and early April. The manufacturing, commercial real estate, consumer spending, and mining sectors were down. Although the energy sector was flat, winter tourism activity rebounded somewhat after a slow start. Residential real estate and agriculture grew. Over this period, labor markets loosened somewhat. Overall wage and price increases were modest. Significant price increases were noted in insurance and natural gas, and decreases were noted in gasoline.

Construction and Real Estate
Commercial real estate activity was slow. Vacancy rates for office buildings in Minneapolis-St. Paul recently topped 19 percent, reported a commercial real estate firm. A representative of a commercial real estate firm in the Minneapolis-St. Paul area noted that new leasing activity remained slow as companies are still consolidating some operations. However, sales of commercial real estate have been solid due to low interest rates. The value of permits awarded for commercial projects in Billings, Montana, were higher during the first quarter of 2003 than a year ago, according to a city official.

Residential building and real estate activity continued to show signs of strength. Housing units authorized in District states were up 15 percent for the three-month period ending in February compared with a year ago. A western Montana bank director noted recent strong residential real estate activity. Although the apartment vacancy rate in Sioux Falls recently reached its highest level since 1996, developers are adding more units.

Consumer Spending and Tourism
Recent retail spending was generally slow compared with a year ago, in part due to consumers' focus on war coverage and a late Easter relative to last year. A major Minneapolis-based department store and discount retailer reported weaker sales in March compared with a year ago. A representative of a leather products chain noted an immediate negative effect on sales when the Iraq war started; same-store sales were down about 7 percent in March compared with a year ago. A Minneapolis-area mall manager reported that although sales started out the year strong, several store owners have complained about slower traffic in recent weeks. Another mall manager in the Minneapolis area noted a steep drop-off in traffic during the first two days after the start of the war, but traffic and sales for the month of March as a whole were down only 1 percent compared with last year. A mall manager in North Dakota noted that sales were about even with a year ago.

Auto sales in Minnesota were very weak in February and March compared with a year ago; however, sales picked up by early April due to incentives, according to a representative of an auto dealers association.

Winter tourism activity rebounded somewhat after a slow start. The winter tourism season began slower than last year in Montana, according to an official; conversely, February and March were relatively strong. Lodging and visits to tourist destinations were up from a year ago in South Dakota. An official in the Upper Peninsula of Michigan reported a solid winter tourism season; however, traffic crossings at the International Bridge at Sault Ste. Marie were down 11 percent in March compared with a year ago.

Manufacturing activity was down slightly. A March survey of purchasing managers by Creighton University (Omaha, Nebraska) indicated decreased manufacturing activity and lower new orders in Minnesota. As evidence, a Minnesota pipe fabricator temporarily reduced employment due to weak orders, and a northern Minnesota paper plant closed. A western Wisconsin video monitor factory and a tool producer are also closing. However, the Creighton University survey indicated increased activity in the Dakotas. For example, a new ethanol plant is planned for South Dakota.

Energy and Mining
Activity in the energy sector was level, while the mining sector was down slightly. End-of-March District oil and natural gas exploration levels were about equal with early March. Meanwhile, an iron ore mine in northern Minnesota announced plans to shut down temporarily due to weak orders. In addition, due to unseasonably cold weather, the start of the Great Lakes shipping season has been delayed, and therefore mine production may be reduced, according to an iron mining official.

The agricultural economy was up slightly. District cattle and sheep remain in mostly fair to good condition. The calf and lamb season is progressing well in most parts of the District. Montana received above-normal moisture in March, and the District winter wheat crop is faring better than last year's crop. According to the U.S. Department of Agriculture, District farmers intend to plant more acres of corn and soybeans but fewer acres of wheat this spring compared with the spring of 2002. Meanwhile, March milk prices dropped significantly from last year.

Employment, Wages, and Prices
Labor markets loosened somewhat as a number of layoffs were announced since the last report. A major Minnesota-based airline announced a new round of layoffs that will affect about 2,000 positions in the state, while a regional airline in Minnesota will cut 85 jobs. A computer maker announced the layoff of about 500 workers in South Dakota. In St. Cloud, Minnesota more than over 100 jobs will be cut at a valve plant, and 100 workers will be idled at a freezer factory for at least six weeks. A Minnesota-based firm that provides services for issuers of identification and credit cards recently announced about 200 layoffs companywide. A Minneapolis-based investment firm will lay off 100 local employees. Initial claims for unemployment insurance in Minnesota were up 14 percent in March compared with a year ago.

In contrast, a reservation center in South Dakota will add up to 200 jobs this spring. A new call center in Fargo, North Dakota will employ 200 workers within two years. Nurses remain in short supply in many areas of the District.

Wage increases were moderate. A bank director reported that wage increases were generally in the neighborhood of 2 percent to 3 percent over a year ago.

Although overall price increases were modest, significant price increases were noted in insurance and natural gas. Bank directors reported generally slight increases in prices, but mentioned significant increases in health and liability insurance. Small businesses in Minnesota expect double-digit increases in health insurance this year. Residential natural gas prices increased 15 percent in March compared with a month earlier. In contrast, as of early April, regular gasoline dropped 23 cents from a month ago and 6 cents from a year ago in the Minneapolis-St. Paul area.

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Last update: April 23, 2003