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Ninth District--Minneapolis

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The Ninth District economy expanded moderately since the last report. Increased activity was noted in consumer spending, tourism, commercial construction and real estate, manufacturing, energy and mining, and agriculture. The services sector was mixed, and residential construction and real estate activity decreased. Labor markets continued to show signs of strengthening, while wage increases remained subdued. Retail price increases were modest, but price pressures for inputs continued.

Consumer Spending and Tourism
Consumer spending increased. A major Minneapolis-based retailer reported that same-store sales in February were up almost 2 percent compared with a year earlier. A mall manager in North Dakota reported that recent sales were up slightly from a year ago. A representative of a retailers association expects restaurant growth during 2011 in Sioux Falls, S.D. However, retailers noted that March sales may finish lower than March 2010 sales due to the late Easter holiday.

A representative of a Montana auto dealers association reported improving sales; gas prices were not yet a factor in buying decisions. Recent North Dakota vehicle sales were healthy, and dealers were optimistic about 2011, according to an auto dealers association. A domestic auto dealer in Minnesota said that March sales were "excellent."

Late-winter tourism activity was up from a year ago. A chamber of commerce representative reported that late-winter snowmobiling and cross country skiing were strong in northwestern Wisconsin. A Minnesota ski resort noted that February and March activity was up about 8 percent from last year. Several Montana ski areas extended their seasons due to deep snowpack.

Construction and Real Estate
Commercial construction activity increased slightly. March industrial and office permits increased in value in Sioux Falls, from a year earlier, but other commercial permits decreased; a large hotel is under construction in the city's downtown. Commercial contractors in the Minneapolis-St. Paul area said activity increased recently, particularly for industrial and medical facilities. Residential construction decreased for the most part. The value of March residential permits in Minneapolis-St. Paul fell 52 percent from a year earlier; in Sioux Falls they fell 26 percent. However, an unanticipated increase in multifamily construction was noted, with several multifamily projects under way in Sioux Falls and Minneapolis.

Commercial real estate markets improved slightly. Office and industrial vacancy rates fell in Fargo, N.D., according to a commercial developer there. In Minneapolis-St. Paul, a commercial real estate firm noted that vacancy for high-quality office space went down, but demand for lower-quality office space remained weak; retail, hotel and industrial vacancies are expected to decrease slightly from currently high levels. Residential real estate was slow. Home sales in late March in Minneapolis-St. Paul were almost 17 percent below year-earlier levels; median sales prices fell, and inventories increased slightly. A real estate broker in Fargo said the market there was stable. In contrast, the market for rental housing in Minneapolis-St. Paul picked up. Interest in vacation homes in northern Minnesota has increased, according to a contact there.

Professional business services firms reported mixed demand since the last report. A web development consulting firm noted increased demand for online marketing services. A logistics consulting company noted an increase in demand due to companies adjusting to the disruptions caused by the disaster in Japan. However, a contact from a mortgage servicer noted reduced refinancing activity.

Manufacturing output was up since the last report. An April survey of purchasing managers by Creighton University (Omaha, Neb.) showed increases in manufacturing activity in Minnesota, South Dakota, and North Dakota. A consulting firm recently released a survey of 400 Minnesota manufacturing companies, which indicated that 51 percent expect increased sales in 2011 compared with 2010. A tractor maker is expanding into a Minnesota facility. A circuit board producer plans to expand in South Dakota. However, in North Dakota, an electronic components plant plans to close. Surprisingly, 41 percent of manufacturing respondents to a late March ad hoc survey by the Minneapolis Fed indicated they were somewhat unfavorably impacted by the disaster in Japan. One contact noted that plastic resin shipments from Japan have been delayed.

Energy and Mining
Activity in the energy and mining sectors increased since the last report. Late-March oil exploration activity increased from mid-February. Construction of a $140 million geothermal energy project was approved at a Montana mine site. Iron ore mines in northern Minnesota were operating at full capacity, with expectations that 2011 production will be the highest in more than 10 years. Montana mines were operating at near capacity.

District agricultural producers continued to enjoy strong conditions, in spite of wet weather and spring flooding. Prices for most District agricultural commodities increased since the last report, including wheat, cattle, hogs, poultry, and dairy products. District farmers are expected to increase plantings of wheat and corn in 2011, while plantings of soybeans are expected to decrease slightly. However, some farmers have delayed plantings due to the wet conditions.

Employment, Wages, and Prices
Labor markets continued to show signs of strengthening. In Minnesota, a data storage company recently noted that it might hire as many as 300 workers this year, and a power generation company expects to hire 90 employees. A manager at a South Dakota mall noticed more job openings than usual. According to a survey by an employment services firm, 13 percent of respondents in Minneapolis-St. Paul expect to increase staffing levels during the second quarter, while 6 percent expect to decrease staff. Minnesota initial claims for unemployment insurance were down 22 percent compared with a year ago. In contrast, a Minnesota-based medical device company reported plans to cut as many as 2,000 workers companywide, and a Minnesota-based computer manufacturer will lay off 600 to 900 workers companywide.

Wage increases remained subdued. Manufacturing wages in District states were up slightly in February compared with a year earlier.

Retail price increases were modest, but price pressures for inputs continued. According to the Minneapolis Fed's ad hoc survey, 25 percent of respondents increased prices for their final goods and services during the past six weeks, while 53 percent noted increased input prices. Minnesota gasoline prices at the end of March were about the same as in mid-February, but were 75 cents per gallon higher than a year ago. While a number of metals prices remained well above year-ago levels, some prices decreased slightly since the last report. In Minnesota, a chamber of commerce representative noted that a surprising number of businesses took advantage of lower commodity prices last year to negotiate deals that provided at least short-run protection.

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Last update: April 13, 2011