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Federal Reserve Districts

Ninth District--Minneapolis

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Overall Ninth District economic activity increased from October through mid-November. Residential real estate, manufacturing, agriculture, consumer spending and tourism grew. Meanwhile, commercial real estate, mining and energy were level. Labor markets were stable. Wage and price increases were generally moderate; however, significant price increases were noted in plywood, natural gas and beef.

Construction and Real Estate
Commercial construction and real estate activity were somewhat level, and signs of improvement were noted. Representatives of two commercial real estate firms in the Minneapolis-St. Paul area expect that slightly more office space will be filled than vacated in the upcoming year, for the first time since 2001. Several new restaurant projects were planned in Sioux Falls, South Dakota. However, a commercial contractor in Montana noted recent slow building activity in the western part of the state.

Home building and residential real estate activity were strong. Permits for residential construction in the Minneapolis-St. Paul area were up 14 percent in October compared with a year ago. October home sales were strong for mid-priced homes, including townhouses, in Minneapolis-St. Paul, according to a representative of a residential construction company. A home builder in the Upper Peninsula of Michigan noted strong activity during the fall season. Recent Montana residential real estate activity was healthy for both existing and new homes, according to a bank director, and refinancing activity was generally steady.

Consumer Spending and Tourism
Overall retail sales grew modestly, while prospects for holiday sales were generally optimistic. A major Minneapolis-based department store and discount retailer reported same-store sales in October were up almost 2 percent compared with a year ago, while early November sales were above plan. A Minneapolis restaurant manager noted that companies have increased their spending plans for holiday parties compared with the last few years. Mall managers in Montana and greater Minnesota reported sales up about 4 percent in October over a year ago and are optimistic for the holiday season. In contrast, mall managers in the Minneapolis-St. Paul area noted slow to level traffic and sales in October, but expect gains in holiday sales.

Auto sales were softer in October than in September, as manufacturer incentives decreased. A representative of an auto dealers association in Minnesota noted that showroom traffic dropped during the early part of October. Meanwhile, a representative from a dealers association in North Dakota reported slow October sales; however, the year overall was still considered solid.

Tourism activity was generally solid. Fall tourism business in northwestern Wisconsin was strong due to good weather and fishing conditions. Sales of deer hunting licenses were up 14 percent in Wisconsin compared with last year, but remained down from 2001 levels. In the Black Hills area of South Dakota fall tourism traffic was down slightly, but overall sales were up relative to last year. Recent activity was fairly strong in Montana, including increases at Glacier National Park following a slow summer due to fires, according to a tourism official. In addition, inquiries for Montana winter activities were up compared with last year.

Manufacturing activity increased. An October survey of purchasing managers by Creighton University (Omaha, Nebraska) indicated overall increased manufacturing activity in the Dakotas and Minnesota. In addition, preliminary results of the Minneapolis Fed's annual (November) business conditions outlook poll revealed that manufacturers expect increased sales, employment and capital expenditures in 2004. A beef processing company recently announced plans to open a plant in South Dakota. A Minnesota circuit board maker is increasing employment. A computer component producer will reopen a western Wisconsin photo-etching facility in January. However, a compressor manufacturer recently announced plans to close a factory, and a shoemaker will close a manufacturing plant in western Wisconsin.

Energy and Mining
Activity in the energy and mining sectors was level. Late October district oil and natural gas exploration amounts were nearly the same as in late September. Most major district operating iron ore mines continue to produce at near capacity. However, a major mine in Montana expected slight decreases in output during the fourth quarter compared with the third quarter.

Agricultural economic conditions improved. Lenders responding to the Minneapolis Fed's third quarter (September) agricultural credit conditions survey expected that overall agricultural income, capital spending and household purchases would rise in the fourth quarter. The U.S. Department of Agriculture forecast increased corn and sugar beet production in the district and decreased soybean production in 2003 compared with 2002. The USDA expects corn, soybean, wheat and beef prices to remain strong into 2004. In addition, preliminary results of the Minneapolis Fed's business outlook poll revealed that farmers and ranchers expect increased sales and capital expenditures in 2004.

Employment, Wages and Prices
Overall employment activity was stable with a mix of expansions and layoff announcements. Recent expansions included a window maker that recently announced plans to build a plant in Minnesota that will create 135 jobs. An economic development official said that two Eau Claire, Wisconsin employers are considering expansions that would add over 100 jobs to the area. Temporary employment agencies in Sioux Falls, South Dakota noted that demand for temporary positions was strong. In contrast, the closing of a call center in Montana will result in 100 job cuts. A Minnesota computer storage systems company eliminated 25 jobs. A retailer in North Dakota will close its doors, affecting 48 full- and part-time employees. Retailers are generally planning to hire seasonal workers at the same level as a year ago.

Some signs of future increases in hiring were noted. Preliminary results of the Minneapolis Fed's business outlook poll show that 34 percent of respondents expect to increase employment at their firms over the upcoming year, while 16 percent plan to decrease jobs in 2004. Businesses in Bozeman, Montana are generally expecting to begin hiring again over the next 12 months, according to a recent survey.

Wage and salary increases were moderate. Almost 80 percent of respondents to the Minneapolis Fed's business outlook poll expect that wages and salaries at businesses in their communities will increase between 2 percent and 3 percent. Only 4 percent of respondents predict wages and salaries to grow 4 percent or higher.

Price increases were modest, except for significant increases in oriented strand board, natural gas and beef. More than half of respondents to the Minneapolis Fed's business poll predict that prices for their products and services will remain unchanged, while 30 percent expect increases next year. Prices for plywood have more than doubled due to strong demand and current supply constraints, according to a Minnesota homebuilder. Minnesota consumers are expected to pay nearly 15 percent more for natural gas in November, according to a survey of the state's utilities. Beef and veal prices increased over 15 percent in October from September.

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Last update: November 26, 2003