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Ninth District--Minneapolis

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The Ninth District economy grew modestly, but activity was disrupted by widespread flooding and a temporary Minnesota state government shutdown that started on July 1. Increased activity was noted in consumer spending, residential construction, commercial and residential real estate, services, manufacturing, energy and mining. Mixed activity was noted in tourism and agriculture, while commercial construction was steady. Private sector hiring grew modestly, and wage increases continued to be moderate. Overall price increases were moderate, although pressure remains on a number of input prices.

Consumer Spending and Tourism
Consumer spending posted measured growth. A major Minneapolis-based retailer reported that same-store sales in June increased over 4 percent compared with a year earlier. Two Minneapolis area malls noted that recent sales were trending above year-ago levels. A representative of an auto dealers association in Montana indicated that sales activity at dealerships during the past few months increased over last year. A Minnesota auto dealer noted that sales and service volumes were up from last year.

Summer tourism activity was mixed. In western South Dakota, wet weather dampened the start to the season, but summer reservations for RV camping were up about 2 percent. A travel agency in Minnesota noted that both corporate and leisure business were up from a year ago. However, Minnesota state parks were closed during the government shutdown. Flooding in North Dakota has slowed tourism activity, including cancelation of this summer's state fair in Minot.

Construction and Real Estate
Several contacts from across the District reported that recent commercial construction activity was steady at low levels, while construction had stalled in flooded areas. A nutritional supplement producer is building a major addition in Montana. However, construction in the Minnesota transportation sector stalled during the state government shutdown. Some private nonresidential construction was delayed by lack of state government building inspectors. Residential construction increased from last year. The value of residential building permits in June increased 19 percent from the same period a year earlier in the Sioux Falls, S.D., area; in Minneapolis-St. Paul, the value of June permits increased significantly from a year ago.

Commercial real estate markets increased slightly since the last report. Minnesota commercial real estate industry representatives expect higher rents and lower vacancy rates, according to a May survey by the University of St. Thomas. Retail real estate industry analysts expect a slight increase in absorption, but decreases in rent over the summer in the Minneapolis-St. Paul area. Residential real estate markets grew. Home sales during June in Minneapolis-St. Paul and Billings, Mont., were up from last year's post-tax-credit lull in sales. June pending sales of homes in the Sioux Falls area increased from June 2010, but new listings and the median sales price decreased.

Professional business services firms reported increased activity over the past three months. Results of a mid-July Minneapolis Fed ad hoc survey of 55 professional services firms indicated that 47 percent of the respondents saw increased sales, while 29 percent saw decreased sales. Respondents noted that profits and employment also increased. The respondents expected this trend to continue over the next three months. However, a few contacts commented that the Minnesota state government shutdown negatively affected their business.

The manufacturing sector grew modestly. A survey of purchasing managers by Creighton University (Omaha, Neb.) showed that manufacturing activity increased in June in Minnesota and South Dakota, while activity declined in North Dakota, due in part to flooding disruptions. Nearly 70 percent of manufacturing respondents to the Minneapolis Fed ad hoc survey said their sales increased in the past three months. However, in North Dakota, an electric vehicle plant closed in June to consolidate production in Iowa, and a military equipment plant will close in August.

Energy and Mining
Activity in the energy and mining sectors was steady. A renewable energy firm recently announced that it will acquire a biodiesel plant in southern Minnesota, which has been idle since 2008, and resume operations there. Wind-energy development projects continued since the last report, including the opening of a 40-megawatt wind farm in Minnesota. However, a utility announced that it was canceling plans for a $38 million wind farm in western South Dakota. Mid-July oil exploration activity decreased slightly from early June. Mining activity continued at a strong pace across the District.

Agriculture was mixed. While production in western portions of the District was hampered by severe flooding, prices for agricultural outputs remained strong. Preliminary estimates suggest that 6.3 million acres in North Dakota may have gone unplanted due to flooding. Contacts suggested that impacts on hay and feed crops could increase costs for some cattle producers, but a bank director noted that overall hay production in Montana and the Dakotas will be very strong due to moisture conditions. In other parts of the District, crop progress has fared better recently than early-season indicators suggested, but is still behind last year's pace. Prices for some District agricultural commodities increased since the last report, including corn, soybeans and dairy products; however, cattle and wheat prices decreased recently.

Employment, Wages, and Prices
While private sector hiring grew modestly, the Minnesota government shutdown resulted in 22,000 temporary layoffs of state government employees. In Minnesota, a company recently announced plans to build a data center that is expected to provide more than 100 jobs, and a steel producer will add 60 jobs this year. According to a survey by an employment services firm, 20 percent of respondents in Minneapolis-St. Paul expect to increase staffing levels during the third quarter, while 3 percent expect to decrease staff. Businesses in eastern Montana and western North Dakota continued to have difficulty finding workers due to strong oil drilling activity in the region.

Wage increases were moderate. Recent settlements with labor unions generally included modest wage increases over the next two to three years. According to respondents to a recent St. Cloud (Minn.) Area Business Outlook Survey, 34 percent expect to increase employee compensation at their companies over the next six months, up from last year's survey, when 24 percent expected increases.

Overall price increases were moderate, although pressure remains on a number of input prices. Mid-July Minnesota gasoline prices were about the same as early June, but were $1 per gallon higher than a year ago. Meanwhile, prices for copper, lead, nickel and zinc increased. A Minnesota-based food producer reported that food ingredients are expected to rise at least 10 percent over the next year.

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Last update: July 27, 2011