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Ninth District--Minneapolis

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The Ninth District economy continued to grow moderately since the last report. Increases were noted in consumer spending, services, manufacturing and agriculture, while energy and mining were stable at high levels. Commercial construction showed a slight but surprising increase in activity. Tourism and commercial real estate were level, and residential construction and real estate decreased. Labor markets continued to strengthen moderately, and wage increases were modest. While increases in prices for final goods and services remained relatively subdued, a number of input price increases were noted.

Consumer Spending and Tourism
Consumer spending increased. A major Minneapolis-based retailer reported that same-store sales in January were up almost 2 percent compared with a year earlier. A Minnesota-based restaurant chain noted that January sales were up about 5 percent compared with a year ago. A domestic auto dealer in Minnesota reported that sales of new and used cars were strong. However, a Minneapolis area mall noted that traffic in January was down somewhat from a year ago.

Overall winter tourism activity was on par with last year. A Minnesota travel company noted that leisure travel to warm weather destinations was up substantially from a year ago; however, another Minnesota travel company reported only modest gains in winter activity. Winter tourism was about the same as last year in western South Dakota. A tourism official in the Upper Peninsula of Michigan described activity there as soft.

Construction and Real Estate
Commercial construction showed unexpected signs of growth. January commercial building permits increased from the same month a year earlier in Fargo, N.D., and Sioux Falls, S.D. A large software company recently announced plans to open a technology center in suburban Minneapolis. Residential construction activity decreased. The value of permitted units fell 7 percent in Minneapolis-St. Paul in January from a year earlier, largely driven by reductions in multifamily construction; single-family home building remained stable. Residential permits fell in value in Sioux Falls and increased slightly in Fargo during the same period.

Commercial real estate markets were flat overall. In Minneapolis-St. Paul, office vacancy remained high, but the market saw slight positive absorption in the second half of 2010. Retail vacancy declined, and the medical market was flat, while industrial space saw its highest vacancy rates in more than 10 years. Contacts in Fargo, N.D., and Billings, Mont., reported that commercial real estate markets there were stable. Residential real estate activity decreased. January closed sales increased 10 percent in Minneapolis-St. Paul from a year earlier, but the median sales price fell 10 percent. Home prices increased in parts of eastern Montana last year, but luxury- and tourism-driven markets in the western part of the state remained very weak.

Professional business services firms reported increased demand for their services since the start of 2011. About half of the professional service firms responding to a mid-February Minneapolis Fed ad hoc survey saw increased demand since the start of the year, while only 9 percent saw declines in demand. A contact from a large accounting firm reported higher than normal activity.

Manufacturing output was up since the last report. A January survey of purchasing managers by Creighton University (Omaha, Neb.) showed increases in manufacturing activity in Minnesota, South Dakota and North Dakota. Forty-six percent of the manufacturers responding to the Minneapolis Fed's ad hoc survey saw increased demand since the start of the year, while 23 percent saw declines in demand. Several Minnesota metal fabricators noted a solid increase in orders since the last report. A Minnesota manufacturer of drill bits said production increased. A semiconductor chip facility in Minnesota plans to triple production this year. A steel component plant in North Dakota recently expanded production due to increased capital investment. However, a steel fabricator shut down in western Wisconsin, and a manufacturer in the Upper Peninsula reported that severe weather delayed a construction expansion.

Energy and Mining
Activity in the energy and mining sectors remained stable at high levels since the last report. Mid-February oil exploration activity was nearly flat since early January. Wind-energy development projects continued since the last report. District mining commodity prices remained robust, and District mines were operating at near capacity. A company increased exploratory metal drilling activity in western Montana.

Agricultural conditions continued to strengthen. Prices for most District agricultural commodities increased since the last report, including wheat, corn, soybeans, cattle, hogs and poultry; however, dairy product prices decreased recently. The Minneapolis Fed's fourth-quarter (January) survey of agricultural credit conditions indicated farm incomes increased over the previous three months, and almost two-thirds of respondents predicted increases in the next quarter. A decision by the U.S. Department of Agriculture to allow planting of genetically modified sugar beets came as a relief to District beet producers who had already purchased large quantities of the seeds. Heavy snowfall this winter combined with a warm snap in February led to concerns about potential flooding in parts of North Dakota and Minnesota.

Employment, Wages, and Prices
Labor market conditions continued to strengthen moderately. In the Upper Peninsula of Michigan, an energy plant project at a paper mill will create about 170 new jobs. Demand for temporary manufacturing workers was well above year-ago levels at a Minnesota employment services company; strong candidates for permanent positions were recently getting job offers more quickly than a few months ago. Minnesota initial claims for unemployment benefits decreased 5 percent in January compared with a year earlier. In contrast, a telecommunications company recently announced plans to lay off 250 employees, and a defense contractor laid off about 250 employees in Minnesota. In North Dakota, a wind power manufacturer announced 150 layoffs.

Wage increases were modest. Bank directors noted just a few examples of wage increases across a number of industries. However, some manufacturers in South Dakota noted recent increases in wage pressures.

While increases in prices for final goods and services remained relatively subdued, a number of input price increases were noted. According to the Minneapolis Fed's ad hoc survey, 30 percent of respondents indicated that they raised prices for final goods and services since the start of the year, while 47 percent noted that nonlabor input prices increased. A bank director reported that farmers and ranchers were facing higher costs for fertilizer, feed, fuel and chemicals compared with a year ago. Prices for copper, aluminum and some steel products increased since the last report. Food commodity prices also recently rose; however, some food companies in the District reported difficulty passing these increases through to retail prices.

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Last update: March 2, 2011