October 19, 2005
Federal Reserve Districts
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The Ninth District economy grew moderately during September and early October. Increases in activity were noted in consumer spending, manufacturing, real estate, and construction. Meanwhile, agriculture was mixed, energy and mining were stable at a high level, and tourism was slow. Some signs of tightening in labor markets were noted since the last report. Meanwhile, wages grew at a moderate pace. Significant price increases in energy, fuel, and some construction-related plastics were the most visible effects of Hurricanes Katrina and Rita on the district.
Consumer Spending and Tourism
According to a Minnesota auto dealer, sales were brisk in August and early September, but slowed by late September. In western Montana, sales of domestic vehicles were slow during September compared with the summer due in part to a lack of supply. In addition, customers were shopping with more sensitivity to higher gas prices as sales of cars have picked up relative to trucks and SUVs.
Early fall tourism activity was slower than a year ago. A tourism official in the Upper Peninsula of Michigan noted that tourism activity during late summer and early fall was slow compared with last year. In South Dakota, a tourism official reported that September activity was likely affected by higher gas prices; sales and traffic were off about 10 percent from a year ago. However, recent hotel occupancy and room rates were above year-ago levels in Minneapolis due in large part to stronger business travel.
Construction and Real Estate
Real estate was mixed. A contact in Sioux Falls, S.D., who has been in business for 30 years said he has never seen a boom in commercial office and retail as strong as the city is currently experiencing. A Minneapolis Realtor said home sales are continuing to slow, in part due to seasonal trends; the pace of housing price appreciation is expected to slow, but still increase 7 percent over the next year. Realtors in Fargo, N.D., said the housing market boom continued there.
Energy and Mining
Employment, Wages, and Prices
Employment surveys indicate moderate hiring activity. According to a survey by a temporary staffing agency, 26 percent of businesses in Minneapolis-St. Paul expect to hire employees during the third quarter while 13 percent plan to reduce staffing levels. A year ago, 32 percent planned increases and 4 percent expected reductions. According to the recently released St. Cloud (Minn.) Area Business Outlook Survey, 32 percent of respondents plan to increase staffing levels during the next six months; 11 percent anticipate decreases. A recent survey of about 100 business leaders in the Upper Peninsula showed that employment was expected to grow, but at a relatively sluggish pace.
In contrast, the number of initial claims filed for unemployment benefits in Minnesota increased 15 percent in September compared with a year ago. A Minnesota-based airline recently announced plans to lay off 400 pilots and 1,400 flight attendants companywide. A hair care product plant closed in St. Paul that affected over 100 jobs.
Overall wage increases were moderate. For example, a South Dakota county recently announced plans to give county employees 3 percent raises next year. Results from the St. Cloud Area Business Outlook Survey show that just more than half of respondents expect to increase employee compensation over the next six months. However, a bank director noted that a fast food restaurant in southwestern Montana was recently offering starting wages of $10 per hour.
Significant price increases in energy, fuel, and some construction-related plastics were the most visible effects of Hurricanes Katrina and Rita on the district. Home and commercial heating bills recently increased 27 percent in Montana; similar increases are expected in other district states. During the first week of October, average gasoline prices in Minnesota were 92 cents higher than a year ago, but down 8 cents from their peak in early September. Surcharges were common at various stages of production for several goods, ranging between 3 percent and 12 percent. Prices for construction-related plastics, including PVC pipe, have increased significantly.