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Ninth District--Minneapolis

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Economic activity in the Ninth District grew steadily since the last report. Increased activity was noted in consumer spending, tourism, services, commercial construction, manufacturing, and energy and mining. Residential construction and real estate and agricultural activity decreased, while commercial real estate activity was flat. The job market continued to strengthen moderately since the last report, while wage increases continued to be modest. Significant price increases were noted for wholesale items, but retail price increases were moderate.

Consumer Spending and Tourism
Consumer spending grew moderately. A major Minneapolis-based retailer reported that same-store sales in March and April increased 2 percent compared with a year earlier. Sales and traffic have generally been higher than a year ago at a Montana mall, but were softer in mid-May. Sales and traffic are about even with a year ago at a South Dakota mall, according to the manager; cool weather seems to have slowed apparel sales. An auto dealers association in North Dakota forecasts a 10 percent increase in vehicle sales for 2011.

While spring tourism activity was soft in many areas due to cold and rainy weather, tourism officials were optimistic for the summer season. Based on summer reservation levels, the outlook for Minnesota tourism businesses was upbeat. Spring tourism activity was slow in the Upper Peninsula of Michigan, but inquiries for summer travel options were up, according to an official.

Construction and Real Estate
Commercial construction activity increased in April. The value of commercial building permits in April increased from the same period a year earlier in both the Sioux Falls, S.D., and Fargo, N.D., areas. A data center in the Minneapolis area plans an expansion due to strong demand. Residential construction decreased from last year. The value of residential building permits in April dropped 27 percent from the same period a year earlier in the Sioux Falls area; in Minneapolis-St. Paul, the value of permits dropped significantly from a year ago.

Commercial real estate markets were steady since the last report. According to industry analysts in the Minneapolis-St. Paul area, office vacancy rates declined slightly, retail vacancy was flat and industrial vacancy rates did not change much. Home sales during mid-May in Minneapolis-St. Paul were down from last year's tax-credit-driven sales, while new listings increased. April home sales in Billings, Mont., also decreased from last year's tax-credit-driven sales, while the number of homes available for sale increased. Meanwhile, the number of homes for sale in both Sioux Falls and Fargo was down from a year ago. The inventory of homes held by lenders in Minneapolis also increased. Multifamily housing vacancy rates declined, and rents increased over the past few months.

Professional business services firms reported increased activity since the last report. Preliminary results of a mid-year business outlook poll by the Minneapolis Fed found that professional services respondents expect to increase sales and profits over the next year after gains during the past 12 months. The survey also revealed that access to bank credit over the past three months has improved, leading businesses to plan expansions and increase capital expenditures. An environmental consulting firm noted a strong increase in orders from the public sector and slight increases from the private sector. Information technology contacts noted an increase in activity over the past two months.

Manufacturing activity increased since the last report. A May survey of purchasing managers by Creighton University (Omaha, Neb.) showed increases in manufacturing activity in Minnesota, South Dakota and North Dakota. A Sioux Falls manufacturer of electronics and aerospace products is expanding its operations. A bank director reported that manufacturers saw higher productivity and increased their equipment purchases.

Energy and Mining
Activity in the energy and mining sectors increased since the last report. Late-May oil exploration activity increased from early April, and two natural gas processing plants are planned in North Dakota. Wind-energy development projects continued since the last report; however, a $400 million wind-power project in North Dakota was canceled because of potential threats to endangered birds. Iron ore mines in northern Minnesota are operating at full capacity. A mining company is in the early stages of exploring a potential $1.5 billion taconite mine and processing plant in northern Wisconsin. Metals prices remained strong, and Montana mines were operating at near capacity. A potential gold/zinc mine in Michigan's Upper Peninsula is under consideration.

District agricultural producers were hampered by continued poor weather conditions. Wet fields kept spring plantings of corn, wheat, soybeans and sugar beets well behind their five-year averages in late-May. Prices for most District agricultural commodities increased since the last report, including corn, wheat, cattle, hogs, eggs and soybeans. Poultry prices were flat, and dairy prices decreased slightly. Of respondents to the Minneapolis Federal Reserve's first quarter (April) Agricultural Credit Conditions Survey, 83 percent reported increased farm incomes in the previous three months; 57 percent thought incomes would increase in the next three months.

Employment, Wages, and Prices
The job market continued to strengthen moderately since the last report. According to the preliminary results of the Minneapolis Fed's mid-year outlook poll, 30 percent expect to increase full-time employment at their firms over the next 12 months, while 22 percent will decrease staff. Some district companies reported difficulty finding workers to fill information technology jobs, certain health care occupations and skilled manufacturing positions. A North Dakota agricultural producer noted a short supply of qualified agricultural implement mechanics and technicians. An online retailer will add 200 jobs in North Dakota. In Minnesota, a communications firm announced plans to hire 450 workers for a new call center, a health care company will hire 100 more employees and a power generation firm will add 90 employees. In contrast, a defense contractor said it will close an operation affecting 100 workers, a meat producer will lay off 90 employees and a health care organization will lay off 70 workers.

Wage increases continued to be modest. According to the preliminary results of the Minneapolis Fed's mid-year outlook poll, 66 percent expect wages to increase 2 percent or less. Two placement agencies in Montana reported that while demand for employment services is up, most wage increases have remained below 3 percent. However, some Minnesota small businesses were facing increased wage pressures for professional and skilled labor, but not for unskilled labor.

Significant price increases were noted for wholesale items, but retail price increases were moderate. Bank directors reported a number of input price increases, including petroleum-based products, some metals, rubber, health insurance and food. Prices of large tires for mining and farm machinery increased over 50 percent recently. Minnesota gasoline prices were down from recent peaks, but were still over $1 per gallon more than a year earlier.

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Last update: June 8, 2011