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Federal Reserve Districts

Ninth District--Minneapolis

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The Ninth District economy grew moderately since the last report. Increases in activity were noted in consumer spending, manufacturing, and commercial real estate. Meanwhile, energy and mining were stable at a high level and construction was steady. Tourism and agriculture were mixed, while residential real estate softened. Employment levels increased slightly since the last report. Wage increases were moderate. Significant price increases were noted for heating costs, some manufacturing and construction materials, and health insurance.

Consumer Spending and Tourism
Overall holiday retail sales posted moderate growth. A major Minneapolis-based retailer reported same-store sales up almost 5 percent in December compared with a year ago. Retailers in western Montana were generally upbeat; a mall manager in Montana described sales and traffic during December as excellent, particularly the week before Christmas. Sales at a Minneapolis area mall were up about 5 percent during December compared with a year ago; the manager noted that it wasn't a stunning holiday, but not as bad as he had expected when fuel prices were so high. Holiday sales at another Minneapolis area mall were good, but jewelry sales were a little soft, according to the manager. A St. Paul area mall had strong traffic and sales the two weeks before and the week after Christmas. The number of gift card sales was generally higher than a year ago, including a 45 percent increase in gift card sales at a Montana mall.

Car and truck sales during late November and December have been quite slow in North Dakota, according to a representative of an auto dealers association. Overall, November and December motor vehicle sales were soft in Montana, said a representative of an auto dealers association.

Winter tourism was mixed, with several ski areas reporting strong activity; however, after a solid start for snowmobiling, warm weather has recently scuttled many trails. Ski resorts in Montana reported deep snow pack and solid numbers of skiers. In the Black Hills of South Dakota, winter tourism activity was up 40 percent from last winter's slow season, according to a tourism official. While ski hills reported strong sales during the holidays in the Upper Peninsula of Michigan, recent warm weather has slowed snowmobiling in many parts of the Upper Peninsula and northern Wisconsin.

Construction and Real Estate
Overall construction was steady, with commercial construction generally outpacing residential. A survey of Minnesota general contractors performed by an industry association found that 85 percent expect their business to be steady or increasing in 2006. Developers recently announced plans for a $72 million business park in suburban St. Paul. Commercial construction is strong in Sioux Falls, S.D., which ended 2005 with what will likely be a record year. However, November residential building permits in Minneapolis-St. Paul were down 3 percent from high levels a year earlier.

Commercial real estate remains healthy. Industrial absorption in Minneapolis-St. Paul for 2005 was three times as high as the previous year, moving the vacancy rate down to 13 percent at year-end, with growth predicted to continue. A Minneapolis commercial real estate firm reported a decrease in office vacancy and a five-year high in leasing demand. However, residential real estate continued to cool off. In Minneapolis-St. Paul, home sales started to slide at the end of December and listing times increased. A Realtor in Fargo, N.D., reported that the housing market there has slowed since the warmer season, but is about as active as a year ago.

Manufacturing activity expanded. A December survey of purchasing managers by Creighton University (Omaha, Neb.) indicated growing manufacturing activity in the Dakotas and Minnesota. A bank director noted that manufacturing activity is booming in Sioux Falls; for example many cabinetmakers were working at full capacity. A metal part producer in Minnesota is enthusiastic about orders and profitability and plans to add capacity. A Montana truck body manufacturer is expanding production. The president of a western Wisconsin equipment maker reported that activity was "really busy." The expansion of the wind power industry is boosting district wind tower component manufacturing.

Energy and Mining
Activity in the energy and mining sectors was stable at a high level. Oil and gas exploration and production were about level from mid-November through late December. Expansion of the district wind power and ethanol industries continued. A Montana gold mine that halted strip mining continues to process low grade ore. Nearly all open mines in the western portion of the district were producing at near full capacity, and the outlook for production in 2006 "looks quite good," said a Montana mining official. Taconite mines in northern Minnesota and the Upper Peninsula continue to operate at full capacity.

The agriculture sector was mixed. Soil moisture conditions improved across much of the district. The opening of beef exports to Japan aided district cattle producers. However, Minnesota was stripped of its bovine "tuberculosis free" status as several infected herds were found in the northwestern portion of the state. Many producers are fretting over higher input costs of fertilizer, fuel, and machinery.

Employment, Wages, and Prices
Employment grew slightly since the last report, with optimistic signs for future hiring noted. Nonfarm employment levels in district states were 1.2 percent higher than a year earlier in November. According to the St. Cloud (Minn.) Area Business Outlook Survey, 45 percent of respondents expect to hire workers during the first half of 2006; only 4 percent anticipate reducing worker levels. Results from a survey by a temporary staffing agency showed that 29 percent of respondents plan to hire more workers during the first quarter in Minneapolis-St. Paul, while 9 percent expect to reduce staff.

Wage increases remained moderate. A career center administrator in South Dakota noted that the availability of qualified entry-level employees has tightened and that while wages have climbed steadily, they have not increased by "leaps and bounds." A machinist strike at a packaging equipment manufacturing plant in northwestern Wisconsin recently ended with workers agreeing to concessions, including pay cuts and an increased share of insurance premiums.

Significant price increases were noted in heating costs, some construction and manufacturing materials, food, and health insurance. The cost for heating homes in Minnesota during January is expected to be up 38 percent from a year earlier. Bank directors noted significant price increases in freight carrier rates, cement, PVC pipe, fertilizer, and heavy equipment tires. The Wisconsin Farm Bureau Federation reported that during 2005, overall food costs increased 4 percent compared with a year earlier. A recent survey indicated that costs for health benefits increased 9 percent in Wisconsin during 2005. Diesel fuel prices decreased from peak levels in October, but at year-end were still 50 cents per gallon higher than a year ago. Minnesota gasoline prices in the beginning of January were 20 cents per gallon higher than at the end of November and about 45 cents higher than a year ago.

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Last update: January 18, 2006