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Federal Reserve Districts

Ninth District--Minneapolis

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The Ninth District economy grew moderately since the last report. Growth was noted in consumer spending, tourism, services, commercial construction and real estate, manufacturing, energy, mining and agriculture. Residential construction and real estate continued to weaken. Employment was mixed, with tight conditions in the western part of the District and loosening in the east. Overall wage increases were moderate, while significant price increases were noted for fuel, fertilizer, food, steel and copper products.

Consumer Spending and Tourism
Consumer spending increased modestly. A major Minneapolis-based retailer reported that same-store sales increased about 4 percent in October compared with a year earlier. Traffic was relatively slow in October at a Minneapolis-area mall, but grew in early November. Store managers were optimistic for the holiday season, and some were running early promotions. Retail sales at a mall in Fargo, N.D., were well above year-ago levels during the past two months, according to the manager, who also noted increased Canadian traffic because of the stronger Canadian dollar. However, according to preliminary results of the Minneapolis Fed's annual business outlook poll (November), 48 percent of respondents expect consumer spending to decrease in their communities during 2008, while 12 percent expect increases.

An auto dealer in Montana noted that recent demand for smaller cars is increasing and that overall car sales are ahead of last year. Car sales softened during October and early November, according to a representative of a Minnesota auto dealers association.

Fall tourism was up, and officials were optimistic for the winter season. Tourism and convention business was strong during October in Duluth, Minn., according to an official; inventory, occupancy and rates were up. According to a chamber of commerce representative in northwestern Wisconsin, overall tourism-related traffic was good and businesses were optimistic for the winter season.

Contacts from professional business service firms were upbeat. Based on preliminary results from the Minneapolis Fed's outlook poll, respondents from the service sector expect strong growth in their company sales, employment and capital investment in 2008. Contacts at legal firms reported robust billings in several sectors.

Construction and Real Estate
Commercial construction activity was up slightly. A bank director noted that Minnesota builders were busy with industrial and large commercial projects, but that activity in smaller commercial projects was slowing. Construction began on the replacement span for the I-35W bridge in Minneapolis. A large medical provider announced plans to expand its headquarters in the St. Paul suburbs by 175,000 square feet. Meanwhile, residential construction continued at a slower pace. In Minneapolis-St. Paul, housing units authorized dropped 28 percent in October from the previous year. Six planned condominium developments in downtown Minneapolis have been stalled or cancelled in recent months. However, October new housing permits in Sioux Falls, S.D., increased from the previous year.

Commercial real estate saw steady growth. A Minneapolis commercial real estate firm noted that the industrial market saw positive absorption in the third quarter with an increase in lease rates and that leasing was brisk for office space. However, retail real estate was soft. The residential real estate market continued to decline. October home prices per square foot fell 4.4 percent from the previous year, with condominium space down almost 6 percent. However, rents increased and the rental vacancy rate decreased during the third quarter in Minneapolis-St. Paul. Realtors in Sioux Falls said the market there was robust. In western Montana, demand for housing was still strong.

The manufacturing sector grew since the last report. Based on preliminary results from the Minneapolis Fed's outlook poll, respondents from the manufacturing sector expect growth in company sales, employment and capital investment in 2008. In addition, preliminary results from a survey of District manufacturers conducted in early November by the Minneapolis Fed and the Minnesota Department of Employment and Economic Development show that businesses expect production, productivity and investment to increase in 2008 from a solid 2007. Several respondents from the aforementioned surveys indicated that strong exports are driving sales. Meanwhile, an October survey of purchasing managers by Creighton University (Omaha, Neb.) indicated increased manufacturing activity in Minnesota and the Dakotas.

Energy and Mining
Activity in the energy and mining sectors increased since the last report. Oil and gas exploration and production in the District continued at a solid pace. Numerous wind energy projects are under construction, while some proposed ethanol projects were put on hold. Most mines continued to operate at near capacity. High metal prices induced permitting for new mines and expansion of several existing operations.

Robust agricultural conditions were reported across the District. Preliminary results of the Minneapolis Fed's third quarter (October) survey of agricultural credit conditions indicated that lenders expect overall agricultural income and spending to be up in the fourth quarter of 2007 due to higher selling prices and decent yields, but are cautious about higher input costs affecting next year's profits. The strong fall harvest is nearly complete for all major District crops; winter wheat has started to emerge and is in good condition.

Employment, Wages, and Prices
Employment was mixed with tight conditions in the western part of the District and loosening in the east. Based on preliminary results of the Minneapolis Fed's outlook poll, 34 percent of respondents plan to increase employment over the next year, while 21 percent expect to decrease employment. Retailers in Sioux Falls were having difficulty hiring enough seasonal workers because of the area's low rate of unemployment. One retailer noted a decrease in retention as workers search for better pay or benefits at other locations. In northwestern Montana, businesses are advertising and offering more benefits to attract workers than in the past.

In contrast, Minnesota employment levels were down 6,600 jobs in October from September and were only slightly above last year's levels. A residential real estate lender recently announced plans to cut 460 jobs in Minnesota, while a producer of air conditioning and heating equipment plans to lay off up to 145 workers in southwestern Wisconsin.

Overall wage increases were moderate. The preliminary results of the Minneapolis Fed's outlook poll showed that 87 percent of respondents expect wages and salaries to increase no more than 3 percent at businesses in their communities during 2008.

While overall price increases were moderate, significant increases were noted for fuel, fertilizer, food, steel and copper products. Minnesota gasoline prices in early November were about 85 cents a gallon higher than a year ago, while Midwest diesel prices were about 80 cents higher. A Montana bank director noted that fertilizer and a number of food prices have increased over the past three months. Some steel and copper product prices recently rose.

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Last update: November 28, 2007