September 8, 2004
Federal Reserve Districts
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The economy in the Ninth District grew moderately from mid-July through late August. Growth was noted in manufacturing, mining, energy, and consumer spending. Conditions were mixed in tourism, steady in real estate and construction and down in agriculture. District labor markets tightened somewhat from the last report and wage increases were moderate. While overall price increases appear to have been moderate, significant increases were noted for building and manufacturing materials and energy-related products.
Construction and Real Estate
Overall commercial construction activity remained unchanged, although signs of a pickup were noted. A construction association representative in the Upper Peninsula of Michigan said that construction was stable. A general contractor with projects in southern Minnesota and South Dakota said that the summer season was similar to a year ago. Government spending on construction was weak in Montana, but recent increases in government revenue might help, according to a contractors association representative. Contracts awarded for large projects in Minnesota and the Dakotas were up 4 percent for the three-month period ended in July compared with a year ago. An official in Sioux Falls, S.D., noted solid construction activity in both commercial and residential markets and anticipates a record year.
Home building and residential real estate were about even with last year's robust activity. Housing units authorized in district states were level for the three-month period ended in July compared with a year ago. An official in Billings, Mont., described the summer building season as about the same as a year ago. A Realtor in the Minneapolis area reported strong sales; however, home sales were down slightly in July compared with a year ago. In western Montana, a bank director reported solid residential real estate activity, particularly sales of condos.
Consumer Spending and Tourism
Overall consumer spending was up moderately. A major Minneapolis-based retailer reported same-store sales during August were likely to be on target--zero to 2 percent higher than a year ago. Summer traffic at a Minneapolis area mall was up nearly 6 percent from last year. Back-to-school traffic and sales at a North Dakota mall were strong, according to the mall manager.
A representative of an automobile dealers association in South Dakota noted that recent vehicle sales were solid, though perhaps slightly down from a year ago.
Summer tourism activity was mixed as cool weather put a damper on travel in some areas. Cool weather slowed travel to northern Minnesota, particularly through mid-July, said a chamber of commerce official. In South Dakota the number of summer visitors appears to be down from last year's strong levels, but those who came were spending robustly, according to a tourism official. In northwestern Wisconsin the number of tourists was up, and the cool weather encouraged more visits to restaurants and retailers near tourist destinations. A bank director noted that summer tourism in western Montana was better than a year ago; the total number of passengers at airports was also higher than last year.
Manufacturing activity jumped. Preliminary results from a survey of district manufacturers conducted in late July and August by the Minneapolis Fed and the Minnesota Department of Employment and Economic Development revealed that businesses expect production, productivity and profits to increase in the second half of 2004 from a robust first half. "Things are good and getting better," commented a respondent from a small Minnesota company. In addition, an August survey of purchasing managers by Creighton University (Omaha, Neb.) indicated overall improved manufacturing activity in the Dakotas and Minnesota. A window and door company announced plans to expand production at a North Dakota facility, and new plants are expected for a hovercraft maker and specialty manufacturer. A metal stamping factory in Minnesota is adding work shifts. A manufacturer in the Upper Peninsula noted strong growth in demand and higher input costs.
Energy and Mining
Activity in the energy and mining sectors remained strong. Mid-August district oil production increased from mid-July. Recent increases in oil prices have encouraged more drilling activity in the district. Iron ore mines continued to produce at capacity, and a company plans to expand production by 40 percent at a mine in northern Minnesota. The operating mines in Montana produced at near capacity, and a silver/copper mine in Montana plans to reopen by the end of the year. There is interest in opening other closed mine sites and "prices are steady and at a good price," said a Montana mining official.
Agricultural conditions decreased since the last report. An August frost damaged crops in the northern portions of the district, and continued cool weather hindered crop growth. An early hard frost caused significant damage to crops in several counties in Minnesota. Crop progress was significantly behind last year's pace and the five-year average for most district crops. August South Dakota cattle in feed lots were down significantly from July levels. However, lenders responding to the Minneapolis Fed's second quarter (July) agricultural credit conditions survey expected that overall agricultural income would rise in the third quarter.
Employment, Wages, and Prices
Labor markets tightened somewhat since the last report. Seasonally adjusted nonfarm employment was up slightly in July from June in district states but was 1 percent higher than July last year. Initial claims for unemployment insurance in Minnesota were down 19 percent in July compared with a year ago. The number of job vacancies in Minnesota increased to 5.1 vacancies per 10 unemployed people in the second quarter from 3.5 a year earlier. A recent survey by St. Cloud State University (Minn.) of employers who recruit on state campuses noted that all respondents plan to maintain or increase hiring next year. Employers in northwestern Montana noted that finding people to fill some job openings was becoming more of a challenge.
New job announcements included a medical claims company that plans to employ 250 workers in Montana. A window manufacturer in Minnesota was in the process of hiring 300 people, many in temporary positions. In contrast, a Minnesota folding-carton plant will close in December with job losses estimated at 170, a Montana call center laid off 50 employees, and a Wisconsin computer company eliminated 25 positions.
Wage increases remained moderate. A recent contract agreement with workers at mines in Minnesota and the Upper Peninsula included a 9 percent wage increase over the next four years; however, employees and future retirees will share a greater percentage of their health care costs. Sugar beet workers in western Minnesota will receive annual pay raises of 2 percent over three years and will pay only small increases in medical deductibles, according to a recent agreement. Wages for hired workers on farms in Minnesota, Michigan, and Wisconsin were down slightly in July compared with a year ago.
While overall price increases appear to have been moderate, significant increases were noted in manufacturing and building materials and energy-related products. According to the aforementioned Minneapolis Fed survey of manufacturers, 37 percent expect to increase product prices during the second half of 2004, while 8 percent expect to decrease prices. A number of manufacturers and contractors noted higher costs for materials, such as copper, iron, gutters, and carpet. Energy prices were generally higher, including the expected costs to heat homes with natural gas. Diesel fuel prices were recently up 25 percent compared with a year ago. However, gasoline prices in Minnesota near the end of August were up only 3 percent from a year earlier.