Economic activity in the Ninth District decreased in late October and early November. Commercial real estate, agriculture, energy and mining are down. Manufacturing, tourism and consumer spending are down slightly, although auto sales are strong. Labor markets weakened as a result of additional layoff announcements. Overall wages and prices are stable, with the exception of increases in health care and property insurance rates and decreases in cattle hide prices.
Construction and Real Estate
Commercial construction is slower than a year ago. The value of commercial construction projects in October was lower than last year in Billings, Mont., and Sioux Falls, S.D., according to city officials. A commercial real estate consultant reported that the office vacancy rate in downtown St. Paul recently increased to 8.1 percent compared with 5.5 percent a year ago. Expansion plans at the Minneapolis-St. Paul International Airport were delayed during September and October, affecting contractors who would have bid on more than 50 projects. However, a Minneapolis area commercial construction company reported continued profits and a steady workload in the fourth quarter.
Homebuilding is slightly higher than a year ago in several parts of the district. The value of permits in October was higher than a year ago in Billings and Sioux Falls, while the number of permits was slightly higher in Minneapolis-St. Paul. However, October sales of existing homes in the Minneapolis-St. Paul area were down 3 percent compared with last year.
Consumer Spending and Tourism
Retail sales are generally slower, except for strong auto sales. A Minnesota-based leather products retailer reported that same-store sales in October were down 5 percent compared with last year. An economic development official noted that October retail sales were down from a year ago in Sioux Falls. A Helena branch director said that merchants are anticipating slower Christmas sales compared with last year. In contrast, a major Minneapolis-based department store retailer reported that overall same-store sales in October were up 2 percent compared with a year earlier. A Montana mall manager noted above-average traffic in October compared with last year.
Auto dealers reported that new car sales reached high levels. October new car sales in the Dakotas increased from September due to manufacturer incentives, according to auto dealer association representatives. One representative described October as a "barn-burner," but is concerned about future sales. A Minnesota dealership noted that buying activity in November is at a more traditional rate following October's frenzied pace.
Tourism activity is down for fly destinations and generally level for drive destinations. A bank director reported that recent air traffic at a central Montana airport is at a 20-year low. Hotel occupancy in St. Paul was off about 10 percent in October compared with a year ago, according to a convention and visitors bureau representative. Fall tourism was down slightly in the Upper Peninsula of Michigan, but inquiries for winter tourism activity are solid, according to an official. Tourism activity in the Black Hills area of South Dakota was up about 5 percent in October compared with last year.
Overall manufacturing activity is down slightly. An October survey of purchasing managers by Creighton University indicated small decreases in manufacturing activity in Minnesota and North Dakota and increased activity in South Dakota. A Minnesota maker of heating and cooling systems will close, and a northwestern Wisconsin manufacturer of napkin-folding machinery is reducing output. A Montana mill that manufactures studs for housing is shutting down for two weeks, and a northwestern Wisconsin wood products plant has temporarily closed. In addition, preliminary results of the Ninth District's annual (November) business conditions survey reveal that two of three manufacturers are pessimistic about their community's economy. However, a surgical equipment manufacturer in the Upper Peninsula plans to expand production and employment.
Mining and Energy
Activity in the energy and mining sectors is down. Early November district oil and natural gas exploration and production levels are behind the levels of early October. A large northern Minnesota iron ore mine reduced production starting in mid-October due to weak orders by steel producers; an iron ore mine in the Upper Peninsula plans to decrease output in January. In addition, a Montana platinum mine reduced production.
Agricultural conditions have deteriorated. "Cattle prices have dropped about 10 percent over the last month, which will adversely affect many of our customers' ability to repay loans," reported a Montana lender in the Minneapolis Fed's third quarter (November) agricultural conditions survey. The preliminary results of the survey indicate poor financial performance, as half the respondents reported that agricultural customers had below-normal profits over the past three months, while only 8 percent reported above-normal profits. In addition, agricultural bankers reported that 27 percent of their farm customers are at their debt limit.
Employment, Wages, and Prices
Additional layoffs have been announced since the last report. In early November an HMO in Minnesota reported plans to lay off about 230 employees, and a company that provides materials-management products to semiconductor firms plans to reduce staff positions by 100. As a result of a major acquisition, a packaged-food company will eliminate about 300 jobs. A faith-based association recently announced plans to move its Minneapolis headquarters to a different state, affecting 440 employees. A manufacturer in southwestern Wisconsin laid off 100 workers in October, but recently called 15 back to work. Initial Minnesota unemployment claims increased 91 percent in October compared with a year ago.
In contrast, a health insurance company plans to expand operations in northern Minnesota, adding about 200 jobs. A home mortgage company will add 100 jobs in Minneapolis due in part to increased refinancing activity.
Increases in wages and salaries are moderate. Only 10 percent of respondents to a survey of manufacturers in Minnesota, Wisconsin and the Dakotas reported higher wages in October, down from 35 percent a year ago. According to preliminary results of the Minneapolis Fed's business conditions survey, almost 95 percent of respondents (up from 67 percent a year ago) expect wages to increase no more than 3 percent in 2002.
Price changes are modest, except for notable decreases in cattle hides and increases in health care and property insurance rates. Prices for cattle hides and skins dropped almost 8 percent in October compared with a month earlier. Health care costs for employers in the Minneapolis-St. Paul area are expected to finish the year up 7.1 percent compared with the previous year, according to a consulting firm. Several bank directors reported recent significant increases in property insurance rates. According to the October survey of manufacturers in Minnesota, Wisconsin and the Dakotas, 19 percent of respondents reported recent increases in product prices, down from 28 percent a year ago.