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Ninth District - Minneapolis

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Economic activity in the Ninth District is subdued. Manufacturing, commercial construction, tourism and mining activities are down. Agriculture is mixed. Residential real estate, consumer spending and energy exploration are up slightly. Several companies announced layoffs; nevertheless, labor markets remain tight. Overall wage and price increases are moderate. However, significant increases are reported in home prices, and decreases are noted for gasoline and fertilizer.

Construction and Real Estate
Construction activity in the district is down slightly from a year earlier. Construction contracts awarded in Minnesota and the Dakotas dropped 7 percent for the three-month period ending in June compared with the same period last year. Vacancy rates for office and industrial space in the Minneapolis-St. Paul area have increased about 2 percentage points during the past year and are expected to increase by another 2 percentage points by June 2002, according to a commercial real estate firm. Lease rates in downtown Minneapolis are predicted to drop or remain flat. Representatives of commercial real estate firms report new construction has slowed from a year ago in Missoula, Mont., as several big box retailers are completing new stores.

Homebuilding activity is higher compared with last year. Housing units authorized increased 5 percent in the district for the three-month period ending in June compared with a year earlier, including a 26 percent climb in multi-family units. Home sales were up 6 percent for the first half of 2001 compared with a year earlier in the Fargo, N.D., area and are even with last year's record pace in Sioux Falls, S.D. A banker in the Upper Peninsula of Michigan noted strong activity for new home purchases and construction, in part due to low interest rates. According to a building association representative, Minneapolis-St. Paul area builders are busy despite a 15 percent decline in permits for the first six months of 2001 compared with a year earlier.

Consumer Spending and Tourism
Overall district retail sales are level to up slightly. A major Minneapolis-based department store retailer noted that overall same-store sales in June were flat compared with a year earlier. A Minneapolis area-based retailer of women's apparel reported same-store sales up 4 percent in June compared with the same period last year. Sales at a Minneapolis-area mall were up 4 percent for the first half of 2001 compared with the first half of last year. Retail sales in rural Montana communities are sluggish. Auto sales are level compared with a year ago in North Dakota, according to an auto dealer association representative.

Tourism activity is down slightly from a year ago in many areas of the district. In the Upper Peninsula of Michigan an official said it appears that tourists are spending less in restaurants and stores compared with last year. In northwestern Wisconsin, tourism activity was slow in June but picked up in July to normal levels, said a Chamber of Commerce official. Visitor numbers were off at several major attractions in June compared with last year in South Dakota, including a 3.5 percent decrease at Mount Rushmore. Meanwhile, the tourism market in Montana is soft, according to a bank director.

Overall manufacturing activity is down. A June purchasing manager survey by Creighton University indicated very weak new orders in Minnesota, level manufacturing activity in North Dakota and growth in South Dakota. As evidence, a ski-making facility in Minnesota will close and production will move overseas; a beverage dispenser producer and a drill bit manufacturer both plan to reduce production due to weak sales. A construction equipment manufacturer in North Dakota shut down for one week to reduce inventory levels. An air conditioner company plans to close a compressor facility in western Wisconsin. However, a pasta producer is building a new manufacturing plant in North Dakota, and a new saw mill is planned in the Upper Peninsula of Michigan. A geothermal heat-pump plant is under construction in South Dakota.

Mining and Energy
The energy sector expanded, while the mining industry contracted. District oil and natural gas exploration remains above last quarter levels. In addition, ethanol production is increasing, and a new South Dakota plant is under construction. Meanwhile, iron ore shipments in May were 10 percent below year-ago levels. Even though several iron ore mines restarted production after closing for a few weeks earlier this summer, a major mine plans to shut down for a few weeks this fall. Commodity prices have fallen for many metals. A Montana copper mine and an aluminum smelter are still closed. However, a Montana platinum/palladium mine remains at full production.

Certain agricultural prices are strong. The U.S. Department of Agriculture (USDA) indicated that June prices compared with a year ago are higher for milk, broilers, cattle, hogs and calves, but lower for eggs and turkeys. In addition, a South Dakota bank director reported favorable hay prices. Even with the first cutting of the alfalfa crop essentially complete, a Montana director noted a sell-off in cattle herds due to high hay costs. The USDA reported that corn and soybean crop progress is behind the five-year average in Minnesota, South Dakota and Wisconsin. In addition, about a fifth of the Minnesota corn and soybean crops are rated poor or very poor. In contrast, a North Dakota bank director noted favorable crop conditions, and the USDA reported North Dakota oats, barley, spring wheat and soybean progress ahead of the five-year average.

Employment, Wages, and Prices
Several companies announced layoffs, and job openings are down. A major financial services company plans to cut as many as 1,000 jobs over the next 15 months; about 500 workers will be laid off at a district-based airline; and a computer firm will eliminate about 100 positions in Minnesota. In North Dakota, 35 telemarketing workers lost their jobs. During second quarter 2001, 97,200 job openings were reported in Minnesota, representing a 3.8 percent job vacancy rate, down from 4.9 percent and 124,000 openings in fourth quarter 2000.

Even with a lower job vacancy rate and higher layoffs, labor markets still remain tight. Unemployment rates across the district are below historic averages. About 9 percent of nursing jobs in South Dakota are currently open due to a shortage. A direct marketer of credit and insurance services will expand its workforce by 200 workers in Minnesota.

Overall wage increases are moderate, with larger increases reported in some recent labor contract signings. Only 25 percent of respondents to a survey of manufacturers in Minnesota, Wisconsin and the Dakotas report increased wages between May and June compared with 47 percent a year ago. Manufacturing wages increased 2.7 percent for the three-month period ending in June compared with a year ago. Many schoolteachers in North Dakota will receive an average of a 6.1 percent increase in pay for the upcoming year compared with last year.

Price increases remain modest, with decreases noted in gasoline and fertilizer and significant increases in residential real estate prices. District gasoline prices were down about 10 to 15 cents in July compared with last year. Fertilizer prices have dropped about 15 percent from three months ago. The median home price in Minneapolis-St. Paul increased 12 percent in June compared with a year earlier.

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Last update: August 8, 2001