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Federal Reserve Districts

Ninth District--Minneapolis

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The Ninth District economy displayed broad-based growth since the last report. Numerous sectors experienced expansion, including consumer spending, manufacturing, real estate, construction, tourism, agriculture, energy, and mining. Reports of employment increases outweighed reports of employment declines. Meanwhile, wages grew moderately. Significant price increases were noted in fuel and certain construction materials.

Consumer Spending and Tourism
Consumer spending grew since the last report. A major Minneapolis-based retailer reported same-store sales up 6 percent in July and expects a 6 percent gain in August compared with the same period last year. A North Dakota mall manager noted that traffic was heavier in July and August than a year ago; apparel sales were particularly solid. A Minneapolis area mall manager noted that sales were up in the single digits during July compared with a year earlier. Another Minneapolis area mall manager noted that while traffic was slower in July and August from last year, sales were up about 1 percent. A western South Dakota mall manager reported slower traffic in July and August, but sales are expected to increase 2 percent to 3 percent from a year ago.

A representative of an auto dealers association in South Dakota reported that sales were strong in July, spurred by special price discounts. Dealerships in western Wisconsin report that customers are trading in used sport utility vehicles and pickup trucks and purchasing fuel-efficient cars.

Tourism activity was higher than a year ago in several areas of the district. In July and early August the number of visitors at a tourism office was above last year's levels in northwestern Wisconsin. The number of visitors was up 2 percent and sales were up 6 percent during July compared with last year in the Black Hills area of South Dakota, according to a local official. The South Dakota state fair had record attendance in 2005. A chamber of commerce representative in northwestern Montana said that lodging and retail sales were ahead of last year. In contrast, a tourism official in the Upper Peninsula of Michigan noted that the region was struggling to keep tourism activity at last year's relatively soft pace.

Construction and Real Estate
Construction activity grew. Housing units authorized in Minneapolis-St. Paul in July were up 6 percent from last year. A representative of a homebuilders association in Fargo, N.D., said the building season has been very strong, but is not quite on track to match 2004's record-breaking year. Retail construction in the Minneapolis-St. Paul area was strong, especially in the suburbs. A Minneapolis commercial real estate firm forecast construction of 2.9 million square feet by the end of the year, which would be a new record. A major railroad in the Dakotas and Montana began construction on $54 million in upgrades to rail lines in those states.

Real estate activity was strong. The Minneapolis-St. Paul office market continued to rebound, with a commercial real estate firm projecting a vacancy rate below 16 percent by the end of the year, down significantly from the 18 percent rate at the beginning of this year. In addition, industrial and retail markets remained robust. Residential real estate was brisk in most markets, with signs of cooling in the Minneapolis-St. Paul area. The housing market in Sioux Falls, S.D., was strong, with home prices up 9 percent in July from a year earlier. Realtors in Fargo, N.D., and Billings, Mont., described high activity in their areas as well. However, closings in July for the Minneapolis-St. Paul metro area were down 4 percent from a year earlier, with some real estate salespeople describing the market as much slower than it has been in recent years.

Manufacturing activity expanded. A July survey of purchasing managers by Creighton University (Omaha, Neb.) indicated strong manufacturing activity in Minnesota and the Dakotas. In addition, recent Minnesota manufactured exports to China increased significantly from a year ago. In Minnesota, a recreational vehicle manufacturer is building a new engine plant and an aircraft maker is expanding production capability. In South Dakota, a meat processor plans a major expansion. In western Wisconsin, a disk drive component company will invest $25 million in a facility expansion.

Energy and Mining
Activity in the energy and mining sectors increased. Oil and gas exploration and production increased from early July through mid August. Mines across the district are producing at near full capacity. Exploration and permitting activity is strong. For example, a proposed copper mine in northern Minnesota is testing samples of ore, which could result in a $235 million project. In Montana, a coal-to-liquid-fuel plant is under consideration.

Economic activity in the agricultural sector increased due to strong yields and prices. Good growing conditions aided crop development across the district as progress for almost all district crops was ahead of last year and of the five-year average. In Montana, 73 percent of the spring wheat crop is rated good to excellent. Meanwhile, 86 percent of the cattle in South Dakota are rated good to excellent. The U.S. Department of Agriculture projects corn prices in 2005/06 to average $2.85 to $3.35 per bushel, up $0.25 on each end from last month's projection. The USDA also increased its price projections for soybeans and corn and expects cattle and dairy prices to remain at strong levels. Lenders responding to the Minneapolis Fed's second quarter (July) agricultural credit conditions survey expected that overall agricultural income and capital spending would be stable in the third quarter of 2005.

Employment, Wages, and Prices
Employment levels increased since the last report. A Minnesota-based healthcare provider recently reported plans to hire 600 employees companywide in preparation for a federal prescription drug program for seniors. Also in Minnesota, an electronic components distributor expects a net annual gain of 150 jobs by year's end and a disk drive maker opened a new office and hired 20 engineers. The number of agricultural workers in Michigan, Minnesota, and Wisconsin increased by 9 percent in July from a year ago.

In contrast, a lumber company recently announced plans to lay off 120 workers in Montana. Job vacancies in Minnesota during the second quarter were down 10 percent compared with a year earlier.

Wage increases were moderate. Wages paid to manufacturing workers in district states increased 2.8 percent for the three-month period ended in July compared with a year earlier. The average wage rate for agricultural workers in Michigan, Minnesota, and Wisconsin increased 3.5 percent in July from a year ago.

Overall price increases were moderate; however, significant price increases were noted in fuel and fuel-dependent services and some building materials. Diesel fuel was up about 60 percent compared with a year earlier. Minnesota gasoline prices in mid-August were 38 percent higher than a year earlier. A number of delivery service operators in Montana have increased rates. Natural gas prices increased about 10 percent to 15 percent since the last report. Cement and concrete prices posted gains since the last report; they are about 10 percent to 15 percent higher than a year ago. In contrast, lumber prices were lower than a year ago.

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Last update: September 7, 2005