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Overall Ninth District economic activity increased in July and August. The residential real estate, consumer spending, manufacturing, energy and mining sectors grew, and tourism was mixed. Meanwhile, commercial building was sluggish, and agriculture was down slightly. Labor markets were soft. Wage and price increases were generally modest; however, significant price increases were noted in natural gas, long-term care insurance and tuition.
Construction and Real Estate
Overall commercial building was sluggish, but some areas of improvement were noted. During the first half of 2003, commercial construction activity in the Minneapolis-St. Paul area office and industrial markets was at its slowest level in almost 10 years, according to a real estate firm; however, leasing activity has picked up during the past two months. Another Minneapolis-St. Paul real estate company noted that July sublease space in the office market decreased by about 25 percent from year-end 2002. A number of new health care related building projects are under way or planned in northeastern Minnesota. The value of office and institutional building permits for July year-to-date in Sioux Falls, South Dakota more than doubled from a year ago.
Home building and residential real estate activity grew. By the end of July, 401 permits for new single-family homes were issued year-to-date in Billings, Montana compared with 318 for the same period a year ago, according to a city official. In the Minneapolis-St. Paul area, the number of housing units authorized was 6 percent higher in July compared with last year, and the number of home sale closures was up 10 percent.
Consumer Spending and Tourism
Overall retail sales grew moderately. A major Minneapolis-based department store and discount retailer reported same-store sales in July up 3.1 percent compared with a year ago.
A Montana mall manager noted that July sales were up 4 percent from last year. While July traffic was flat compared with last year at a Minnesota mall, August traffic was up. In North Dakota a mall manager noted flat sales in July, but an increase in August with back-to-school shopping sales, particularly in apparel. Another Minneapolis area mall reported recent sales as flat, but traffic was up 10 percent compared with a year ago. A consumer sentiment survey conducted by the Montana Bureau of Business and Economic Research showed that Montana consumers felt essentially the same about economic prospects in July as they did in December 2002.
Tourism activity was mixed. In South Dakota, a tourism official noted that visits to a Black Hills ranger station were up between 20 percent to 75 percent on any given day compared with last year. Visits to Mount Rushmore were up 2 percent in July over a year ago. Tourism activity was steady to up a little bit over last summer in North Dakota, an official said. An outfitter in northern Minnesota reported activity level with a year ago. However, in the Upper Peninsula of Michigan, July expenditure at tourism-related businesses was off about 10 percent compared with a year ago. July visits at Glacier National Park were down about 30 percent due to forest fires.
Manufacturing activity was up slightly. Preliminary results from an August survey of district manufacturers by the Federal Reserve Bank of Minneapolis and the Minnesota Department of Employment and Economic Development revealed that businesses expect new orders and production to increase in the second half of 2003 from the first half. In addition, a July survey of purchasing managers by Creighton University (Omaha, Nebraska) indicated overall increased manufacturing activity in the Dakotas and Minnesota. As evidence, a human vaccine producer plans to expand in South Dakota, and a North Dakota brick manufacturer recently completed a plant upgrade to double production. A shower and bath spa company in the Upper Peninsula recently added a production facility and additional shifts to keep up with demand. However, a North Dakota cheese processing plant and a pasta factory shut down, and a consumer housewares producer plans to close a manufacturing facility in Minnesota.
Energy and Mining
Activity in the energy and mining sectors increased slightly. Early August district oil and natural gas exploration levels increased slightly from early July. In addition, a power plant, a gasoline refinery, and wind and ethanol facilities are in development or design in the district. Meanwhile, most major district iron ore mines are operating at near capacity, although cost cutting and productivity enhancements were announced at several mines. A Montana copper mine plans to reopen this fall.
Agricultural economic activity was down slightly. Significant soybean aphid infestations were reported in parts of Minnesota. Lack of moisture caused stress to district row crops and livestock as drought conditions expanded across most of the district. Row crop farmers across the district complained of reduced yield expectations due to lack of rainfall. The U.S. Department of Agriculture rated 62 percent and 37 percent of pastureland in Montana and South Dakota, respectively, as poor or very poor. However, preliminary results of the Minneapolis Fed's June Survey of Agricultural Credit Conditions revealed that 35 percent of lenders expect above average farm income during the third quarter. The mid-summer dry weather assisted small grain harvests. The USDA rated about three-quarters of the Minnesota and North Dakota spring wheat and barley crops as in good or excellent condition.
Employment, Wages, and Prices
Labor markets were soft. Employment levels were down almost 1 percent among district states in July compared with a year ago. Minnesota's initial claims for unemployment insurance increased 4 percent in July compared with last year. Layoff announcements included the closure of two call centers in South Dakota that resulted in 230 job cuts. In Minnesota a circuit board manufacturer cut 100 jobs and a maker of power-conversion products eliminated 40 jobs. A mine in the Upper Peninsula reduced employment by 50 positions. A retailer in the Minneapolis area recently received 1,600 applications for 150 positions at a new store. Preliminary results of the survey of district manufacturers show that respondents expect only slight employment growth for the rest of 2003.
In contrast, home building contractors recently noted difficulty finding available laborers in Billings, Montana. In St. Paul, a temporary services firm noted that demand was relatively strong this summer compared with last year. Recently revealed expansion plans include a Minnesota online education firm that may increase employment by about 400 positions. A new call center in North Dakota plans to employ up to 125 employees.
Overall increases in wages were moderate. For example, union members at two Minnesota newspapers agreed to annual wage increases of about 2 percent to 3 percent over the next four years. However, the average wage for hired workers on farms in Minnesota, Michigan and Wisconsin increased 12 percent in July compared with a year ago.
Price increases were generally modest, with exceptions noted in prices for natural gas, long-term care insurance rates and tuition. District manufacturers expect product prices to remain level for the rest of 2003, according to preliminary results of the manufacturing survey. Several thousand households in Montana recently saw natural gas rates jump 35 percent over a year ago. Some insurance companies in Minnesota just announced premium increases for long-term care insurance of 20 percent to 45 percent compared with last year. Tuition increased about 12 percent to 15 percent at the University of Minnesota for 2003-2004 compared with last year.