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Federal Reserve Districts

Ninth District--Minneapolis

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The Ninth District economy grew modestly since the last report. Growth was noted in consumer spending, tourism, services, commercial construction and real estate, energy, mining and agriculture. Manufacturing was mixed. Residential construction and real estate continued to weaken. Labor markets were stable with continued tightness in some areas. Overall wage increases were moderate, while significant price increases were noted for fuels, fertilizer and phosphates, and lumber prices decreased.

Consumer Spending and Tourism
Consumer spending during the holidays was up slightly. A major Minneapolis-based retailer expects flat same-store sales in December compared with a year earlier. After an outstanding November, sales were up slightly in December at a North Dakota mall. A mall manager in Montana reported that December sales were flat to slightly down compared with a year ago; jewelry sales were particularly soft. At another Montana mall, traffic was down slightly in December compared with a year ago, but gift card sales were up substantially. However, a major electronics retailer based in Minnesota reported strong holiday shopping.

Recent truck and car sales were up in North Dakota due in part to strength in the agricultural sector. An increase in the number of Canadians buying cars in Montana was noted by dealers near the border.

Solid snowfall in many parts of the District helped spur winter tourism activity. Tourism officials in northwestern Wisconsin and northern Minnesota noted strong cross-country skiing and snowmobiling activity. A ski resort in northeastern Minnesota reported one of its busiest Decembers ever. Tourism was up slightly in the Upper Peninsula of Michigan; however, it suffered from increased competition due to good snow conditions in Minnesota and Wisconsin. In contrast, a lack of snowfall in western South Dakota has dampened snowmobiling and led to late openings at ski resorts.

Service firms reported some growth. Early winter storms increased demand for auto repair services. An executive search firm noted strong new business in December. Contacts in the medical services area reported stable activity. A contact at an automation company reported slow activity in December.

Construction and Real Estate
Commercial construction activity grew at a slower pace. December nonresidential permits were down slightly in value from the previous year in Sioux Falls, S.D., but up dramatically in Fargo, N.D. A number of health care providers in the Minneapolis-St. Paul area announced ambitious expansion plans, including a $300 million expansion on several campuses of a children’s hospital. However, a survey of Minnesota commercial contractors showed that more than half expect a decrease in work in 2008. Residential construction continued its lull. The number of residential permits issued in November dropped 23 percent from the previous year in the Minneapolis-St. Paul area. In Sioux Falls, December residential construction was down slightly from last year’s record level, while in Fargo the value of new homes permitted was down 60 percent.

Real estate market conditions were also split between the commercial and residential sectors. Commercial real estate firms in several District markets noted overall strength in the office and industrial segments, with retail vacancy up in some places. A recent informal survey of Minneapolis-St. Paul agents showed most were optimistic about revenues and profits for 2008, though some were concerned about tighter credit conditions. In contrast, residential markets experienced further doldrums. Pending home sales for the last three months of 2007 in the Minneapolis-St. Paul area were about 20 percent lower than their year-earlier level. However, the housing market remained strong in Sioux Falls, and Realtors in western Montana said activity there was steady.

Manufacturing activity was mixed since the last report. A December survey of purchasing managers by Creighton University (Omaha, Neb.) indicated increased manufacturing activity in the Dakotas and decreased activity in Minnesota. Energy and defense-related manufacturers in the Dakotas reported solid activity in December. Across the District, food manufacturers were busy processing the robust District harvest. However, wood product manufacturers reported decreased activity due to the slump in housing construction.

Energy and Mining
Activity in the energy and mining sectors increased since the last report. Strong oil and gas exploration and production continued in the District. Alternative energy projects, including wind, ethanol and biodiesel, were planned or under construction. Most mines continued to operate at near capacity, and some expansions were under way. A Montana mining official reported the highest level of exploration activity in years.

Robust agricultural conditions were reported across the District. Strong commodity prices and good moisture conditions bode well for the upcoming growing season. The U.S. Drought Monitor indicated that District moisture conditions improved since late November. Since the last report, the U.S. Department of Agriculture revised upward the estimated 2008 prices for several District agricultural commodities. Farmers were reporting some difficulty storing the huge fall harvest. The price of farmland in the District continued to increase.

Employment, Wages and Prices
Labor markets were stable with continued tightness in some areas. Bank directors noted a strong challenge finding qualified labor for skilled and unskilled jobs for companies in North and South Dakota. In South Dakota, a customer-service management firm was hiring an additional 300 workers and a health care plan company recently announced expansion plans that could add 200 jobs over the next three years. A concrete products company plans to break ground on a new plant in the spring that will add 200 jobs in Minnesota. In contrast, about 40 workers were laid off at a loan-processing facility in Montana. According to respondents to the recent St. Cloud (Minn.) Area Business Outlook Survey, 20 percent expect to hire more workers over the next six months, while 18 percent expect to decrease payrolls; in last year’s survey, 34 percent expected increases and 8 percent anticipated decreases.

Overall increases in wages were moderate. According to the aforementioned St. Cloud survey, 49 percent of respondents expect employee compensation to increase over the next six months, about the same as last year's survey. Wages for District manufacturing workers were up 3.6 percent for the three-month period ended in November compared with a year earlier.

Significant price increases were noted for fuels, fertilizer and phosphates, while lumber prices decreased. Minnesota gasoline and Midwest diesel fuel prices were 78 cents per gallon higher than a year ago. Jet fuels were 45 percent higher than a year ago. In addition, prices for fertilizers and phosphates were up significantly from last year. Meanwhile, lumber prices continued to decrease.

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Last update: January 16, 2008