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Federal Reserve Districts

Ninth District--Minneapolis

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The Ninth District economy grew moderately since the last report. Growth was noted in consumer spending, tourism, services, commercial construction real estate, manufacturing, energy and agriculture. Residential construction and real estate activity decreased and mining was flat. Labor market conditions tightened, and overall wage increases were moderate. Price changes were generally modest, except for significant increases in gasoline and copper and decreases in lumber.

Consumer spending and Tourism
Consumer spending increased moderately. A North Dakota mall manager noted that recent sales were up about 5 percent. Retailers in northeastern North Dakota noted an increase in the number of Canadian shoppers. Traffic at a Montana mall was up about 2 percent, and sales were up about 8 percent in June compared with a year earlier, according to the manager. A major Minneapolis-based retailer reported same-store sales up about 3 percent in June compared with a year ago. An auto dealership in Montana reported strong sales, especially for import lines, but slower sales for domestic vehicles; sales continue to tilt toward more fuel-efficient vehicles.

Tourism activity was up from a year ago. A number of resort and motel owners in the Upper Peninsula of Michigan noted that reservations in June and early July were as good or slightly better than a year ago. Tourism activity on the weekends before and after July 4th were busy in northwestern Wisconsin, according to a chamber of commerce representative. Another chamber of commerce representative noted that tourism activity was going well in northeastern Minnesota after a slow spring. Tourism businesses in Montana were reporting a strong summer, according to an official; many more Canadians were vacationing in northwestern Montana than a year ago.

The professional business services sector saw growth compared with last year. Results of an ad hoc Minneapolis Fed July survey of professional services companies indicated that business activity increased from a year ago and is expected to increase over the next year. Accountant and consultant contacts reported increased billings and plan to expand their businesses over the next year. Appraisers, researchers and other business-support firms reported slight growth in activity from a year ago and expect this trend to continue. Business activity was mixed, according to contacts from legal and executive search firms.

Construction and Real Estate
Construction activity was mixed with commercial up slightly and residential down. Commercial construction contacts in central Minnesota and Montana saw slowing growth. However, a materials supplier in Minneapolis-St. Paul noted a number of large commercial projects under way. Construction began on a 240,000 square foot energy-efficient office building in suburban Minneapolis. Several contacts noted wastewater treatment facilities under construction around the District. However, residential construction decreased, as June building in Minneapolis-St. Paul slowed from a year earlier. Multifamily construction appears steady in many areas, including increases over the past year in Sioux Falls, S.D., and Rochester, Minn.

Real estate activity was also mixed with commercial real estate up and residential down. An analyst noted that large investors have purchased a number of big-ticket office buildings in the Minneapolis and St. Paul central business districts. Office vacancy continued to decline in Minneapolis-St. Paul; however, the industrial sector saw negative absorption in the second quarter. Residential real estate was slower than a year ago. June home sales were down 16 percent in Minneapolis-St. Paul; sales in Fargo, N.D., were down slightly. In contrast, a Realtor in Grand Forks, N.D., described the market as growing steadily, and home sales are on track to beat last year's record level.

Activity in the manufacturing sector grew since the last report. A June survey of purchasing managers by Creighton University (Omaha, Neb.) indicated increased manufacturing activity in Minnesota and the Dakotas. In Minnesota, a metal fabricator reported that business was "booming," primarily due to increased exports. In South Dakota, a mining equipment manufacturer reported strong demand and a food processor plans to add a new facility. A North Dakota company that installs heating equipment noted that interest in industrial systems was increasing.

Energy and Mining
Activity in the energy sector increased since the last report, and mining was flat at high levels. Alternative energy projects continued at a strong pace. Oil and gas exploration and production in the District was level from previously reported amounts. Production at most mines remained at near capacity across the District. However, production at a Montana mine was reduced due to a recent worker strike.

Agricultural conditions improved since the last report. The U.S. Department of Agriculture reported that crop progress was ahead of last year and the five-year average for many District crops. A Montana bank director noted excellent agricultural conditions, with robust yields expected and prices up significantly from a year ago. However, the director noted some softening in corn prices since the last report.

Employment, Wages and Prices
Labor markets tightened modestly since the last report. In Minnesota, an aviation company recently announced plans to add 150 jobs and a molding company is expected to add 250 new jobs over the next three years. A business software company plans to add 80 jobs in northwestern North Dakota, and a new finance operations center will provide up to 150 jobs in Montana. Labor markets continue to be very tight in northeastern Montana; a bank director noted that a large number of businesses have posted "help wanted" signs. A temporary staffing agency survey of Minneapolis-St. Paul businesses showed that 44 percent of respondents expect to hire workers during the third quarter, while 11 percent expect to reduce staff. These results indicated stronger employment growth from a year ago, when 33 percent expected increased hiring and 13 percent anticipated decreases.

However, Minnesota unemployment insurance claims in June were about 12 percent higher than a year ago. In addition, a disk drive parts maker recently announced plans to cut 245 jobs in Minnesota, 165 in northwestern Wisconsin and 90 in South Dakota.

Overall wage increases were moderate. For example, an association of state employees in Minnesota recently reached a tentative contract agreement that calls for wage increases of 3.25 percent annually over the next two years.

Price changes were generally modest, except for significant increases in gasoline and copper and decreases in lumber. According to the respondents to a recent St. Cloud (Minn.) Area Business Outlook Survey, 35 percent expect prices received for their company's products to increase over the next six months, down from 39 percent in last year's survey. Gasoline prices in Minnesota climbed over $3 per gallon during early July, about 25 cents higher than a month earlier. Copper prices also increased in early July. However, softwood lumber prices were down more than 10 percent compared with a year ago.

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Last update: July 25, 2007