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Ninth District--Minneapolis

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Economic activity in the Ninth District increased slightly since the last report. Growth was noted in consumer spending, manufacturing, agriculture and commercial real estate and construction. Meanwhile, tourism, energy and residential real estate and construction activity decreased, and mining was flat. Labor markets remained relatively tight in a number of areas, but overall wage increases were moderate. Overall price pressures were modest as some price increases for materials and energy continued to moderate. 

Consumer Spending and Tourism
Overall retail sales increased moderately. A major Minneapolis-based retailer reported same-store sales up about 5 percent in January compared with a year ago. A Minneapolis-area mall manager noted that sales in January were strong and that traffic was brisk during President's Day weekend. In Montana, a mall manager noted that overall sales in January were up from a year ago, particularly at national chains. A mall manager in North Dakota reported that sales in January were about even with a year ago, but also noted that a number of new retail stores have opened in the area. January sales and traffic at a South Dakota mall were about even with a year ago.

According to an auto dealer in Minnesota, during the past two months, the number of buyers was lower than a year ago; purchases of imported vehicles were up, but sales of domestic vehicles were down. A representative of an auto dealers association in Minnesota noted that recent traffic in stores selling domestic vehicles was very slow and that some dealerships have closed or plan to close.

Winter tourism activity was lackluster. A lack of snow hampered snowmobiling and cross country skiing activity in many portions of northern Minnesota and Wisconsin. In the Upper Peninsula of Michigan, a tourism official noted that snowmobiling conditions improved by mid-January, but the slow start will result in a down year. Bitterly cold weather slowed lift ticket sales at a ski resort in northern Minnesota. In contrast, Montana is having a good winter season, according to a tourism official. Ski resorts have reported solid revenue, particularly in February, and snowmobiling in Yellowstone picked up compared with the past few years.

Construction and Real Estate
Commercial construction was up. An industry publication forecasted activity in Minnesota and the Dakotas to be up slightly in 2007 from the strong activity last year. Authorities approved construction of a $300 million oil pipeline in Minnesota this year. A large railroad announced plans to make $54 million in track improvements in Montana. Developers in Sioux Falls, S.D., began purchasing land for a $150 million mixed-use downtown redevelopment. Market analysts predict an expansion of retail and industrial construction in Minneapolis-St. Paul this year. However, residential construction saw continued weakness. Residential permits in the Minneapolis area were down 38 percent in January from a year earlier. A shift toward multifamily construction was noted in several areas, including Minneapolis and Rochester, Minn.

 Commercial real estate was robust. The overall office vacancy rate in Minneapolis-St. Paul at the beginning of the year was almost a full percentage point lower than a year earlier; landlords are becoming more aggressive in pushing up rents. Strong demand for retail space was noted in Minneapolis-St. Paul and Sioux Falls. In contrast, residential real estate activity remained slow. New home sales listings in Minneapolis-St. Paul during early 2007 were relatively high, but lower than the same period a year ago. However, Realtors in Fargo, N.D., and Sioux Falls reported steady activity. Contacts in western Montana reported slowing growth in residential real estate markets there. A turn in residential rental properties toward lower vacancies and increasing rents was noted in several markets in the District, including Minneapolis-St. Paul, St. Cloud, Minn., Sioux Falls, western Montana and Fargo-Moorhead.

Activity in the manufacturing sector grew modestly since the last report. A January survey of purchasing managers by Creighton University (Omaha, Neb.) indicated flat manufacturing activity in Minnesota and increased activity in the Dakotas. In South Dakota, a maker of radiators and heat exchangers plans to build a new plant, a plastics company is building a new facility and a farm equipment manufacturer is expanding production. In Minnesota, a large water filtration product manufacturer expects continued growth in its industrial and commercial markets. However, several companies that produce inputs for the home building market noted a downturn in demand.  

Energy and Mining
Activity in the energy sector decreased since the last report, and mining activity was flat at high levels. Oil and gas exploration in the District decreased from previously reported amounts. Meanwhile, a Bank director noted that some of the planned ethanol projects are on hold, while wind energy projects continue to advance. Mining production remained at near capacity across the District. Another Bank director noted that activity in the Duluth- Superior harbor should be up in 2007, partially due to increased iron ore shipping.  

Agricultural activity increased since the last report. Preliminary results of the Minneapolis Fed's fourth-quarter (January) agricultural credit conditions survey indicate that lenders expect overall agricultural income to be up slightly in the first quarter of 2007 due to higher selling prices and some lower input costs. The U.S. Bureau of Land Management and the Forest Service decreased the fee ranchers are charged to graze animals on federal lands. Unfortunately, tuberculosis was found in a South Dakota cow for the first time in more than three decades, which may increase costs for ranchers if additional animals are infected. 

Employment, Wages and Prices
Labor markets remained relatively tight in a number of areas. A food processing plant in North Dakota has actively recruited employees outside of the state. An aerospace components manufacturer and a regional jet maintenance facility in Montana each recently announced plans to hire more than 100 employees during the next year or two. A Montana construction contractor said that this was the tightest labor market in three decades. In contrast, the closing of two popcorn plants will result in 200 fewer jobs, and a specialty printer laid off 100 workers in Minnesota. 

Wage increases were moderate. A union for janitors who clean office buildings and skyways in the Minneapolis-St. Paul area recently agreed to a 10 percent raise over three years and increases in health care coverage. However, in western Montana, double-digit wage increases were reported as oil drilling operations in the area have led to extremely tight labor market conditions. 

Overall price pressures were modest as some price increases for materials and energy continued to moderate. Lumber prices were down about 10 percent compared with a year ago. Minnesota gasoline prices increased about 25 cents in mid-February from a month earlier, and were 10 cents higher than a year ago. Prices for copper were lower in the past couple of months; however, futures prices recently inched up. In contrast, Bank directors noted that prices for heavy equipment tires continued to escalate. In addition, rail freight rates were notably higher than a year ago.

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Last update: March 7, 2007