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Federal Reserve Districts

Ninth District--Minneapolis

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The Ninth District economy showed continuing signs of growth from late November through mid-January, especially in consumer spending, manufacturing, energy, and mining. Agriculture was mixed, construction was steady, and tourism was down. Employment grew slightly and wage increases were moderate. Price increases appeared for a number of products including pork, fertilizer, and some manufacturing and construction materials.

Consumer Spending and Tourism
Overall consumer spending grew. A major Minneapolis-based retailer reported same-store sales up 5 percent in December compared with a year ago, while a Minnesota-based electronics retailer reported same-store sales up 2.5 percent. Bank directors noted that jewelry sales were up significantly, while sales at discount stores were soft. A women's apparel chain based in Minnesota reported December same-store sales fell 7 percent compared with a year ago. Sales for snow removal and winter recreation products were down from a year ago in several areas of the district due to low snowfall levels.

District mall managers noted a solid holiday sales season and between a 10 percent and 45 percent increase in gift card sales over a year ago. December sales at a North Dakota mall were up about 7 percent in December from last year. In Montana a mall manager reported a 6 percent gain in traffic for December compared with a year ago. A manager at a Minneapolis area mall reported traffic was strong, while merchandise returns were relatively soft between Christmas and New Year's; total December sales were up slightly from a year ago.

Winter tourism activity was slow due to a lack of snowfall in several parts of the district. A tourism official in the Black Hills area of South Dakota reported that snowmobiling and cross-country skiing were down significantly due to a lack of snow. Two downhill ski resorts in central Minnesota reported November and December activity down slightly from a year ago. However, snowmobiling activity during the holidays was up in the Upper Peninsula of Michigan and far northern Wisconsin thanks to "lake effect" snow from Lake Superior. In addition, over 125,000 fans attended games at the Junior World Hockey Championship held in Grand Forks, N.D., and Thief River Falls, Minn., during late December and early January.

Manufacturing activity increased. A December survey of purchasing managers by Creighton University (Omaha, Neb.) indicated strong manufacturing activity in the Dakotas and Minnesota. An ad hoc survey of manufacturers revealed that capital spending is expected to increase in 2005, primarily due to higher sales expectations. In Minnesota, several firms announced plans to expand production facilities, including a plastics part producer, a tooling company, a furnace company, and an agricultural machinery maker. In South Dakota, a cooling system manufacturer is opening a $7 million plant, and an emergency vehicle producer received a large order for fire trucks. In western Wisconsin, two shipbuilders proposed expanding production facilities, and a wood products company plans a major expansion.

Construction and Real Estate
Commercial construction was steady. Contracts awarded for large construction projects in Minnesota and the Dakotas during the three-month period ended in November were about even with a year ago. A building official in Duluth, Minn., reported strong nonresidential construction through 2004 and expects slight growth in 2005. Residential construction was down slightly from year-ago levels. Permits issued in November for new home construction in Minneapolis-St. Paul were down 20 percent from the same month a year earlier. Housing units authorized in district states during the three-month period ended in November were down 2 percent compared with a year ago. However, Sioux Falls, S.D., issued a record number of housing permits by year-end 2004. Home builders are expected to remain busy during the winter months in Duluth, Minn., according to a builders association representative.

Real estate sales were mixed. The market for industrial space improved dramatically in 2004, according to a commercial real estate firm. A large user absorbed 212,000 square feet of office space in downtown Minneapolis, although downtown St. Paul had a 25 percent vacancy rate, compared with 19.4 percent a year earlier. The number of homes sold in Minneapolis-St. Paul in November was about 16 percent higher than a year earlier, with particularly strong demand for condominiums.

Energy and Mining
Activity in the energy and mining sectors remained strong. The Bureau of Land Management reported a record high price for oil and gas lease rights for a parcel of land in Montana. Meanwhile, mining companies are expanding production. Iron ore production was up, and additional investment was under way. A Montana mining official noted increased activity at most mines and said some mines have to wait for additional machinery, as new equipment orders may take up to two years to fill. There is increased interest in starting mining operations across the district.

The agriculture sector had mixed economic activity. The expected opening of the Canadian border to live cattle imports in March 2005 has some district cow/calf operators nervous about the effect on calf prices. Dairy producers are still enjoying strong prices for their products. The USDA expected Wisconsin December 2004 milk prices to average $17.40 per hundred pounds. Even though there is very little snow cover to protect against freeze or wind damage, the USDA rated 65 percent of the Montana 2005 winter wheat crop as good to excellent.

Employment, wages and prices
Employment grew slightly since the last report. Nonfarm employment in district states during November was 1.6 percent above year-earlier levels, the highest year-over-year increase since September 2000. A railroad hired more than 200 new workers in Montana during 2004. In North Dakota, a heavy equipment manufacturer will hire 100 workers; in northwestern Wisconsin, a transport company recently announced plans to add 162 new jobs over the next three years. A manufacturer of lubrication equipment recently said it will hire 40 workers in Sioux Falls. A representative of a placement firm for technology professionals in Minnesota expects the job market for information technology workers to steadily improve during 2005. Almost 20 percent of companies surveyed in Minneapolis-St. Paul by a temporary staffing agency plan to hire more employees during the first quarter of 2005, while 10 percent expect to reduce staffing levels.

In contrast, a Minnesota freezer manufacturer cut about 230 jobs in December, and a software company recently announced plans to lay off 75 employees. A paper mill in northern Minnesota intends to eliminate about 60 positions, and a mail-sorting operation will shut down in central Minnesota, laying off 24 employees.

Wage increases were moderate. A Minnesota state economist predicted that increases in real wages per job in the state will grow 2 percent in 2005.

Significant price increases were noted in pork, fertilizer, and several manufacturing and construction materials. Pork prices in November were up 20 percent from last year, while recent fertilizer prices were up 30 percent. Prices for steel, plastics, and copper were significantly higher than a year ago. While recent natural gas prices were above year-ago levels, prices decreased from the beginning of November to late December.

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Last update: January 19, 2005