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Federal Reserve Districts

Ninth District--Minneapolis

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The Ninth District economy showed signs of solid growth since the last report. Increases in activity were noted in consumer spending, manufacturing, agriculture, and commercial real estate. Meanwhile, construction, energy, and mining were stable at a high level. Tourism and residential real estate softened. Labor markets tightened slightly since the last report. Wage increases were moderate. Significant price increases were noted for construction materials, plastics, and energy, while gasoline prices decreased.

Consumer Spending and Tourism
Overall consumer spending increased since the last report. A major Minneapolis-based retailer reported same-store sales up almost 6 percent in October compared with a year ago; however, sales in early November were below expectations. A mall manager in North Dakota said that recent sales were up more than 5 percent over last year. In addition, higher gas prices seemed to have little impact on traffic at the mall. Traffic counts and sales in October were up over a year ago at a Montana mall; store owners were optimistic for the holiday season. However, a St. Paul area mall manager noted that recent traffic and sales were a little slower than a year ago. A member of the Minneapolis Fed's Advisory Council on Small Business and Labor noted that some retailers observed that people were shopping closer to home due to higher gas prices. A representative of an auto dealers association in Minnesota said that except for some dealers who sell import cars, traffic and sales were very slow at many dealerships.

Tourism activity softened. This year's Minnesota deer-hunting permits were down an estimated 6 percent from last season. A tourism official in Montana noted that September tourism activity was a little softer than a year ago, but ski areas were looking forward to opening on time or even early. A bank director reported that two ski hills were expanding in southwestern Montana.

Construction and Real Estate
Construction activity flattened since our last report. October building permits were about level from year-earlier figures in most district MSAs, including Rochester, Minn., Fargo, N.D., Sioux Falls, S.D., and Minneapolis-St. Paul. A major retailer announced plans for a $2 billion mixed-use development in a Minneapolis suburb. A St. Paul suburb approved a 136-acre mixed-use development that will include 1,200 homes. A Duluth, Minn., developer broke ground on a $37 million hotel-condominium development. A bank director in western Montana reported rapid growth in residential and recreational construction in that area.

District residential real estate markets showed signs of cooling. A record number of new listings appeared in the Minneapolis-St. Paul metro area in October, while the number of buyers decreased, leading to longer sale times and a leveling in home prices. Realtors reported similar phenomena in Fargo, N.D., and Rochester, Minn. Meanwhile, commercial and industrial markets improved in Minneapolis-St. Paul.

Manufacturing activity expanded. An October survey of purchasing managers by Creighton University (Omaha, Neb.) indicated strong manufacturing activity in the Dakotas and Minnesota. Based on preliminary results from the Minneapolis Fed's annual business poll (November), respondents from the manufacturing sector expect growth in company sales and employment in 2006. In addition, preliminary results from a survey of district manufacturers conducted in late October and November 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 first half of 2006 from a solid 2005. A medical device maker plans to double its manufacturing capacity at a plant in Minnesota. A wind turbine manufacturer is building a plant in Minnesota to meet the strong demand for new wind farms.

Energy and Mining
Activity in the energy and mining sectors was stable at a high level. Oil and gas exploration and production were about level from early August through mid-November. Meanwhile, biodiesel sales were temporarily halted in Minnesota over concerns that the fuel did not meet quality standards. Expansion of the district wind power industry continued. Mines in the western portion of the district were producing at near full capacity, except for a gold, silver, lead, and zinc mine in western Montana, which halted production for at least a month due to landslides at the open-pit operation. Taconite mines in northern Minnesota and the Upper Peninsula were operating at near full capacity.

The agriculture sector grew as yields and production were large for most district crops. Record yields for Minnesota corn and soybeans were reported by the U.S. Department of Agriculture. District corn and soybean production was larger than last year's bountiful harvest. The USDA reported that half the winter wheat crop is in good to excellent condition. A bank director noted that agriculture is as "good as it has ever been in Montana." The USDA raised its 2006 estimated prices for steers and hogs. However, profit margins were squeezed as corn and soybean prices decreased, while diesel, transportation, and fertilizer expenses increased. Preliminary responses to the Minneapolis Fed's third quarter (October) agricultural credit conditions survey indicated that overall agricultural income and capital spending would be down in the fourth quarter of 2005.

Employment, wages and prices
Labor markets tightened slightly since the last report. A bank director noted that the labor market for construction workers is tight in southwestern Montana, and a newspaper article reported a shortage of construction workers in Sioux Falls, S.D. Call centers were hiring more than 80 workers in central Montana. A career-resources company report showed that the Minneapolis job market posted steady growth from May through September. According to preliminary results of the Minneapolis Fed's business outlook poll, 54 percent of respondents said that securing workers was a challenge or serious challenge, up from 44 percent a year ago. In addition, 33 percent expect to hire more full-time employees in 2006, while 13 percent plan to decrease staff.

Wage increases were moderate. Preliminary results of the Minneapolis Fed's business poll show that 83 percent of respondents expect wages and salaries to increase 3 percent or less in their community during 2006; however, a number of respondents noted significant increases in healthcare benefit costs.

Significant price increases were noted for construction materials, plastics, and energy, while gasoline prices decreased. Several construction materials prices posted notable increases, including cement, carpet, copper, and resin-based products. A bank director noted that prices for plastic bags have increased over 20 percent. Fuel surcharges were reported on several goods, including grocery orders from wholesalers and freight on railroads. Wholesale natural gas prices are expected to rise by 40 percent during the winter heating season. However, unseasonably warm weather has kept increases in heating expenditure during October and early November relatively mild. Minnesota gasoline prices decreased by almost 60 cents per gallon between early October and mid-November, but were still 30 cents higher than a year earlier. According to the Minneapolis Fed's poll of manufacturers, 63 percent expect to raise prices during the first half of 2006; a year ago, 43 percent planned to raise prices.

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Last update: November 30, 2005