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Federal Reserve Districts

Ninth District--Minneapolis

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Ninth District economic activity was stagnant since the last report. Decreased activity was noted in consumer spending and services, while residential construction and real estate remained slow. Tourism and commercial real estate and construction were mixed. Increases in activity were noted in manufacturing, energy, mining and agriculture. Labor markets loosened somewhat since the last report. Wages increased moderately, while prices for many commodities and energy have decreased since mid July, but remain at relatively high levels.

Consumer Spending and Tourism
Consumer spending decreased slightly in some areas. A major Minneapolis-based retailer reported that same-store sales in July were down 1.2 percent compared with a year earlier. A Minnesota-based leather goods retailer recently announced that it plans to liquidate its remaining stores and go out of business. A beauty salon company and franchiser and a woman's clothing retailer, both also based in Minnesota, announced plans to close 160 stores and 36 upscale boutiques, respectively. A North Dakota mall manager reported that August sales levels were on a par with a year ago. In contrast, a Montana mall manager reported strong traffic for back-to-school sales.

Tourism activity was mixed. Tourism activity in the Upper Peninsula of Michigan was soft in July, but August was fairly strong, according to an official. A tourism official in Montana noted that summer activity is on a par with last year; however, tourists are spending less on souvenirs and retail. The number of visitors stopping at tourism information centers was down during July in South Dakota compared with a year ago, but there was a substantial increase in the number of Canadians and other international travelers. A number of contacts observed that people were vacationing, but staying closer to home to save on fuel costs.

Activity in the services sector was down slightly. A large consulting firm noted a decrease in the length of outstanding contracts and reduced entertainment expenses as a result. Contacts from the health care sector reported softness in demand. Contacts from engineering firms reported stable to decreased activity due to the higher input costs their customers are facing.

Construction and Real Estate
Commercial construction activity was mixed. July nonresidential permits in Sioux Falls, S.D., were down 11 percent in value from a year earlier. However, permits increased dramatically in Fargo, N.D. Several energy-related construction projects are planned in the western portion of the District. Residential construction remained slow, but showed signs of bottoming out. July residential permits in Minneapolis-St. Paul were down 42 percent from a year earlier. However, multifamily construction increased in Minneapolis-St. Paul and Sioux Falls. The number of vacant new homes decreased in Minneapolis-St. Paul and other parts of the District.

Commercial real estate activity was mixed. A Minneapolis-St. Paul commercial real estate firm reported that so far this year, the industrial market has been strong, while the office market has been mainly flat and retail has worsened. Contacts in other District cities also reported slow demand for retail space. Residential real estate remained slow. Second-quarter home sales in central Minnesota were down 14 percent from a year earlier. The western Montana home market has cooled slightly from last year, but is performing well relative to most other areas. July pending sales in Minneapolis-St. Paul increased 6 percent from a year ago.

Overall manufacturing activity was up since the last report. A July survey of purchasing managers by Creighton University (Omaha, Neb.) indicated increased activity in the Dakotas and flat activity in Minnesota. Exports of manufactured goods have increased across the District. "Business is booming due to exports," commented a Minnesota metal fabricator. However, a western Wisconsin hardwood product producer reported that sales were off 30 percent from a year ago and production is running at 60 percent of capacity.

Energy and Mining
Activity in the energy and mining sectors increased since the last report. Oil and gas exploration expanded to regions in western Montana. Several alternative biofuel plants are in the planning stages. Expansion of wind farms continued. Growth in the mining industry continued since the last report; almost all District mines are operating at full capacity.

Agricultural conditions improved since the last report. Results of the Minneapolis Fed's second-quarter (July) survey of agricultural credit conditions indicated that lenders expect overall agricultural income and spending to be up in the third quarter. "Crops are looking good," commented a respondent from Minnesota. The winter wheat harvest in Montana is showing better-than-average yields. District corn production is expected to increase over last year's bumper crop. However, many District crop prices softened since the last report.

Employment, Wages and Prices
Labor markets loosened somewhat since the last report. Minnesota's unemployment rate reached 5.8 percent in July, the highest level since 1986. A major Minnesota-based manufacturing company announced plans to eliminate several hundred jobs companywide over the next few months, and a major Minnesota-based airline announced plans to cut 2,500 jobs companywide. Also in Minnesota, an insurance company announced plans to lay off 100 employees and a software firm recently announced plans to lay off 80 employees. Almost 170 employees were laid off by the City of Duluth (Minn.) in response to a budget shortfall. A North Dakota hospital recently announced plans to lay off up to 100 workers. In South Dakota 100 jobs were cut at a computer plant, and in Montana an aluminum producer laid off 125 workers in response to high energy prices. A motorcycle manufacturer in southwestern Wisconsin cut 60 jobs during August. The number of college graduates applying to volunteer in service organizations posted substantial increases in 2008 compared with a year ago. In contrast, labor markets in west-central North Dakota are expected to continue to tighten.

Wage increases were moderate. Miners and support staff at a Montana mine approved a four-year contract that includes pay raises of 4 percent annually, similar to the previous contract. However, a Montana bank director noted that in the northwestern part of the state, wage increases for management positions were accelerating.

Prices for many commodities and energy have decreased since mid July, but remain at relatively high levels. Several metal and grain prices, including aluminum, copper, lead, corn and soybeans, decreased significantly. Minnesota gasoline prices were 38 cents per gallon lower in mid-August than in mid-July; however, they were 68 cents higher than a year ago. Some school districts have moved to a four-day week in order to reduce fuel and energy costs. A bank director noted that medical insurance prices increased 7 percent this year, while health care costs to businesses increased only 5 percent due to benefit reductions and product shifts.

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Last update: September 3, 2008