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Ninth District--Minneapolis

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The Ninth District economy grew modestly since the last report. Consumer spending, services, energy, mining and residential construction and real estate saw slight increases. Tourism was mixed, while manufacturing and commercial construction were stable. Commercial real estate and agriculture were down. Softness in labor markets continued, but the pace of weakening has slowed. Meanwhile, wages were stable and overall price increases remained subdued.

Consumer Spending and Tourism
Overall consumer spending increased modestly. A Minnesota-based restaurant and bar chain reported that recent same-store sales were above year-earlier levels. A movie theater in Minnesota reported that ticket sales were up during January. In the Minneapolis area, a "value-oriented" mall reported that traffic was up over 5 percent in January compared with a year ago; however, a South Dakota mall reported that traffic was down in January from last year, in large part due to inclement weather. A major Minneapolis-based retailer reported that same-store sales in January were essentially flat compared with a year earlier. A bank director noted that retailers have been willing to take a lower margin on inventory to generate sales activity and cover costs where possible.

A representative of an auto dealers association in Montana observed that recent business at a number of dealerships improved a bit. However, a Minnesota auto dealer noted that sales of new and used vehicles in January were down substantially, but were picking up somewhat during February.

Winter tourism was mixed. A representative of a Minnesota travel agency reported that leisure travel increased considerably in January compared with a year ago. Favorable snow conditions helped boost lodging revenue in northwestern Wisconsin. Recent ski visit numbers were relatively flat at a Montana ski resort, while lodging revenue was down due to fewer guests and discounted pricing. Tourism activity was down somewhat in the Upper Peninsula of Michigan, according to a tourism official.

Construction and Real Estate
Commercial construction was steady at low levels. The value of January nonresidential permits in Rochester, Minn., increased from the same month a year earlier; commercial permits in Fargo, N.D., were down from a year earlier. Meanwhile, a $20 million airport terminal building in Duluth, Minn., was in the early stages of development. Residential construction increased. The value of January residential permits in the Minneapolis-St. Paul area increased 16 percent from a year ago. New residential permits in Sioux Falls, S.D., increased 15 percent in value in January from the previous year, and remodeling activity increased as well.

Commercial real estate continued its slump. Overall vacancy for office, retail and industrial properties in the Minneapolis-St. Paul area reached its highest level in nearly 20 years, even with large decreases in lease prices; the retail sector was particularly hard hit. A commercial real estate firm in South Dakota noted that occupancy was down slightly and businesses were staying with current leases as opposed to expanding. A commercial real estate broker in Fargo said markets there were flat.

The residential real estate market saw continued signs of improvement. The January median sales price in the Minneapolis-St. Paul area increased more than 1 percent from the previous January, the first year-over-year increase in 41 months. Home sales in Bismarck, N.D., and Sioux Falls increased as well.

Overall activity increased in the professional business services sector since the last report. Contacts from information technology firms reported solid orders but noted some difficulties in collecting fees. Web development firms reported improved activity with backlogs ranging from a few weeks to a few months. A contact from a health care firm indicated that demand for core services was solid, while orders for elective procedures were soft. A bank director noted that legal fees were flat to down from a year ago. A Minnesota architectural firm's recent revenue was lower than a year ago.

Manufacturing output was flat since the last report. A January survey of purchasing managers by Creighton University (Omaha, Neb.) showed that manufacturing activity was relatively level in Minnesota and the Dakotas. An electronic equipment maker in North Dakota reduced production at two plants. A Montana cement maker restarted production after a three-month shutdown. A plastic pipe producer plans to start a plant in South Dakota.

Energy and Mining
Activity in the energy and mining sectors increased since the last report. Mid-February oil exploration increased from mid-December. Wind energy projects are under construction in the western portion of the District. Meanwhile, activity at Montana copper, platinum and gold mines was brisk during the past few months. Permits were issued for a copper and nickel mill processing facility in the Upper Peninsula. January iron ore production was estimated to have increased slightly from December 2009 levels.

Agricultural activity was down. The Minneapolis Fed's fourth-quarter (January) survey of agricultural credit conditions indicated that lenders expect overall agricultural income and spending to decrease in the first quarter. Several winter storms rolled though the District since the last report, causing stress on livestock.

Employment, Wages, and Prices
Softness in labor markets continued, but the pace of weakening has slowed. Minnesota unemployment insurance claims were up about 3 percent in January compared with a year earlier; however, increases in unemployment insurance claims have leveled off during the past three months. A medical insurer in Minnesota recently announced plans to lay off 150 employees, while a financial firm announced plans to cut 25 positions in South Dakota. By contrast, a business that processes employee applications in Minnesota will hire an additional 50 employees, and a bank recently announced plans to hire more brokers.

Wage rates remained stable. A Montana bank director noted that most business contacts in his area expect no increases in wages or benefits in 2010.

Overall price increases remained subdued, with some noted exceptions. Bank directors reported price increases in freight and health care costs, and some price hikes in plastics and other petroleum-based products. Meanwhile, construction inputs and bidding prices were down. Some decreases in fertilizer and herbicide prices were expected for the upcoming year. Minnesota gasoline prices were down about 15 cents per gallon in mid-February from mid-January.

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Last update: March 3, 2010