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Ninth District economic activity decreased slightly in most sectors since the last report. Decreased activity was noted in consumer spending, tourism, services, construction and real estate, manufacturing, energy, mining and agriculture. Labor markets continued to weaken, as a number of companies announced layoffs since the last report. Overall wage increases were modest. A number of prices continued to decrease since the last report, but the pace of decline seems to have stabilized.
Consumer Spending and Tourism
Holiday sales were down somewhat in a number of areas. Contacts in Montana reported decreases in sales ranging from 5 percent to 40 percent, but grocery store sales were at least level with last year. A mall manager in Montana noted that December sales were down from last year--the first year-over-year decrease in more than 20 years. A bank director noted that retail sales in South Dakota were up slightly during the holiday season, but deep price discounts ate into profit margins. A representative of a Minneapolis-area mall noted that traffic was slower than typical during the early and middle parts of the holiday shopping season, but it picked up toward the end. Meanwhile, a representative of an auto dealers' association in South Dakota reported that recent vehicle sales were down substantially.
Tourism activity was down slightly from a year ago. A ski resort in northeastern Minnesota reported that visit numbers through the holidays were down from a year ago. Convention and conference business in the St. Paul area has trended downward since last fall, while tourism activity was down slightly from a year ago in Duluth, Minn. Snowmobiling and ice fishing activity was relatively strong in northwestern Wisconsin, according to a chamber of commerce representative, but business at restaurants was slow.
Activity in the services sector decreased since the last report. Slow activity was reported by contacts from the legal, architectural and information technology areas. Medical service contacts reported mixed conditions, with services for the aging increasing but elective procedures decreasing.
Construction and Real Estate
Commercial construction declined. The value of commercial permits fell significantly in Sioux Falls, S.D. Severe cold and snowy conditions hampered construction activity. Residential construction remained quiet. A contact reported that home building activity in the Bozeman, Mont., area was slow. November new home permits in the Minneapolis-St. Paul area were down about 30 percent from a year earlier. In the Kalispell, Mont., area, where the housing sector had been strong until recently, November permits were down 26 percent from a year ago.
Commercial real estate activity decreased. A representative of a Minneapolis-based commercial real estate firm said that the market remains in a downturn that has now lasted over a year; a different firm reported increasing office and industrial vacancy rates. Several areas in the district saw increased retail vacancy, with further store closings expected. While remaining slow, the residential real estate market showed signs of increased activity. An association of Realtors in Minneapolis-St. Paul noted that the number of sales in late December increased from year-earlier levels, driven by foreclosures and short sales, but significantly lower home prices kept dollar volumes down. Realtors in Fargo, N.D., and Sioux Falls noted that lower mortgage rates seem to be spurring some buyers into action.
Overall manufacturing was down from the last report. A December survey of purchasing managers by Creighton University (Omaha, Neb.) indicated significantly decreased activity in Minnesota and South Dakota, but slightly increased activity in North Dakota. Numerous manufacturing companies reported weakened demand and expected to reduce capital spending and employment. An aluminum maker in Montana announced plans to stop production. However, some defense contractors and medical device companies reported increased manufacturing activity.
Energy and Mining
Activity in the energy and mining sectors decreased since the last report. Late December oil and gas exploration declined from late November. Meanwhile, most iron ore mines in the district decreased production and expect a big reduction in output in 2009 from 2008 levels. Several mine operators in Montana were worried about lower metals prices and reduced demand.
Agricultural conditions deteriorated since the last report. Extremely cold weather and higher than normal snowfall stressed cattle. A Montana cow and calf operator reported that cattle needed increased levels of feed and water. A South Dakota feedlot reported some deaths due to the frigid weather. However, the frozen ground allowed farmers to progress on the late harvest.
Employment, Wages and Prices
Labor markets continued to weaken, as a number of companies announced layoffs since the last report. In Minnesota, a major manufacturer recently announced more than 2,000 job cuts companywide, a water filtration manufacturer announced 1,600 job cuts companywide, a supplier of suspension assemblies for disk drives will lay off about 1,000 employees and an airplane manufacturer laid off 500 employees in December. Due to decreases in orders during the fourth quarter, a Minneapolis-based spray and fluid equipment maker will cut 150 jobs and a company that makes street sweepers and large floor-cleaning machines will cut 240 jobs. A number of health care providers have announced layoffs in the Minneapolis-St. Paul area, although demand for health care workers remains in some areas. Many more prospective workers are applying for open positions compared with a few months ago in Montana. Job postings at a workforce center in northwestern Montana were at historically low levels, according to the center's manager. A South Dakota credit card services firm announced 50 layoffs. A temporary staffing agency survey of Minneapolis-St. Paul businesses showed that 14 percent of respondents expected to hire workers during the first quarter, while 10 percent expected to reduce staff.
Wage increases have remained modest. Wages for manufacturing workers in district states increased 2.6 percent for the three-month period ended in November compared with a year earlier.
A number of prices continued to decrease since the last report, but the pace of decline seems to have stabilized somewhat. Prices for a number of metal-based products, including copper and steel, decreased since the last report. A bank director noted that scrap aluminum prices have dropped 50 percent during the past few months. Minnesota gasoline prices at the end of December were $1.40 less per gallon than a year ago. While phosphates and other agriculture-related chemicals have decreased in price since the last report, they remain well above year-ago levels.