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Ninth District--Minneapolis

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The Ninth District economy continued its moderate recovery since the last report. Consumer spending, tourism, services, manufacturing, energy, mining and agriculture saw increases. Commercial real estate showed a slight but surprising increase in activity; commercial construction was flat, and residential construction and real estate decreased. Labor markets continued to strengthen modestly, and wage increases remained generally subdued. Overall price increases were modest, but some exceptions were noted among inputs.

Consumer Spending and Tourism
Consumer spending during the holiday season increased from a year ago. Sales activity was favorable during December compared with the prior year at a Minneapolis area mall. A North Dakota mall manager reported that traffic was up about 3 percent to 5 percent in December from the previous year. In South Dakota, a mall manager noted strong retail activity during the last week before Christmas; some stores reported lean inventory levels following unanticipated strong holiday sales volumes. Also in South Dakota, a toy retailer reported strong holiday sales compared with a year ago. A chamber of commerce representative in northern Wisconsin reported that area retailers were pleased with the holiday shopping season. A Minnesota bank director noted that holiday shopping began earlier this season.

According to an auto dealers association in Minnesota, new vehicle sales through November were up slightly from a year ago; light trucks gained market share relative to cars. A Minnesota domestic auto dealer reported strong December sales.

Winter tourism activity was up from a year ago. Sales of snowmobiles increased at two dealerships in central Minnesota compared with the previous year, as early snowfall blanketed the region. A representative of a Minnesota ski resort reported that winter sports activity in the area was well ahead of last season due to good snow conditions and a better outlook for the economy. However, rain and warm temperatures at the end of December led to deteriorating snow conditions for cross country skiing and snowmobiling in northwestern Wisconsin.

Construction and Real Estate
On balance, commercial construction was flat at low levels. Commercial construction activity has trended downward in Fargo, N.D., and Great Falls, Mont., according to sources there. Commercial builders in the Minneapolis-St. Paul area described activity as mostly stable, though some noted signs of slight increases. November commercial and office permits increased in Sioux Falls, S.D., from a year earlier. Overall residential construction decreased. The value of November residential permits fell 7 percent in Minneapolis-St. Paul from a year earlier, though the number of permitted units increased. Home building permits in November fell in value in Sioux Falls, but increased slightly in Fargo from the previous year.

Commercial real estate showed a slight but surprising increase in activity. In Minneapolis-St. Paul, several large leasing deals were announced and a large suburban office tower was recently sold. A November survey by the University of St. Thomas found increased optimism among Minnesota commercial real estate market participants. A commercial broker and developer in Fargo said activity there has picked up as well, with a reduction in the amount of empty retail space. Residential real estate markets slowed. A November survey of Ninth District real estate agents showed decreases in sales prices and transactions and increases in inventory and time on market. November closed sales in Minneapolis-St. Paul fell 39 percent from a year earlier, and median sales prices declined more than 2 percent. In contrast, a real estate agent in Bismarck, N.D., described the market there as healthy.

Professional business services firms reported increased activity. A contact that supports business travel services noted an unexpected increase in activity since the last report. A large technology company is increasing the number of its contract programmers to support software upgrades. An architectural firm noted an increase in projects up for bid as well as a greater number of bidders. Firms that support the mortgage refinance market noted a sharp decline in activity due to higher long-term interest rates.

Manufacturing output was up since the last report. A December survey of purchasing managers by Creighton University (Omaha, Neb.) showed increases in manufacturing activity in Minnesota, South Dakota and North Dakota. A South Dakota maker of video display systems noted increased new orders since the last report. A Minnesota equipment component producer noted strong sales and was increasing production capacity. A bank director reported that regional manufacturers were busier than a year ago.

Energy and Mining
Activity in the energy and mining sectors increased since the last report. Late-December oil exploration activity increased since mid-November. New wind-energy investments were announced since the last report. Continued strong prices were noted for District mining commodities, and District mines were operating at near capacity. A Montana mine recently signed an agreement that will again supply palladium to a large domestic automaker. In Minnesota, November iron ore production increased from October and a mine plans to upgrade its facility to supply Mexican steel plants.

Since the last report, agricultural output prices strengthened, but large snowfalls hampered some ranchers. Prices for most District agricultural commodities increased since the last report, including corn, soybeans, wheat, steers and hogs. Snow cover was relatively modest in Montana and South Dakota, but deep snow impeded ranchers in North Dakota and Minnesota.

Employment, Wages, and Prices
Labor markets continued to strengthen modestly. According to an ad hoc poll of 104 contacts conducted in early January, 39 percent expect to increase hiring and 11 percent expect to decrease hiring over the next six to 12 months. A representative of a Minnesota-based health care system noted that the pace of hiring health care workers was picking up. A Montana job service office reported a relatively sizable number of job openings posted, but demand for nonskilled workers declined somewhat. A Minnesota iron ore pellet producer recently hired 50 workers and plans to hire 24 more to increase production levels. However, a recreational vehicle manufacturer will lay off 500 workers this spring at a plant in northwestern Wisconsin. In Minnesota, a trucking company recently closed, laying off 210 drivers.

Wage increases remained generally subdued. However, a Minnesota all-terrain vehicle powertrain manufacturer gave out bonuses for the first time in several years following the company's relatively strong performance during 2010.

Overall price increases were modest, but some exceptions were noted among inputs. Bank directors noted generally stable retail prices, but mentioned some input price increases, such as copper and some steel products. Minnesota gasoline prices at the end of December were about 20 cents per gallon higher than a month earlier.

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Last update: January 12, 2011