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Federal Reserve Districts

Ninth District--Minneapolis

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The Ninth District economy has grown slightly since the last report. Increased activity was noted in consumer spending, tourism, residential and commercial construction, residential real estate, manufacturing, energy and mining. Crop reports were mostly down from last year, but several District agricultural prices have risen recently. Activity in commercial real estate and professional services was flat overall. Reports from labor markets include a mix of layoffs and new hiring, while wage increases remain moderate. Price increases were generally modest.

Consumer Spending and Tourism
Consumer spending increased moderately. A major Minneapolis-based retailer reported that same-store sales in July increased over 4 percent compared with a year earlier. Two Minnesota restaurant and bar chains reported that recent sales were up modestly from last year. A North Dakota mall manager reported that sales and traffic were steadily up during July and August compared with a year ago. After a relatively soft July, sales and traffic picked up by mid-August at a South Dakota mall. Bank directors noted that luxury goods showed signs of strength, such as sales of jewelry and high-end vehicles.

Minnesota auto dealers were profitable, with recent sales up from last year but still down substantially from 2006, according to an auto dealers association representative. Two auto dealers in Montana reported recent gains in sales from a year ago, but a third dealer described sales as dismal.

Tourism activity was solid in July and August. While early summer rains and high river levels hampered fishing and other outdoor activities in Montana, overall tourism picked up in July. Tourism businesses in northwestern Wisconsin were busy during July and August, according to an official. Activity was up about 5 percent compared with last year in the Upper Peninsula of Michigan; hotels were able to raise prices without losing volume.

Construction and Real Estate
Commercial construction activity has increased slightly since the last report. Respondents to a mid-August Minneapolis Fed ad hoc survey reported an increase in revenues, primarily due to a number of small commercial retrofitting projects in the Minneapolis-St. Paul area. Rebuilding in flood-damaged areas was also mentioned. However, the value of commercial building permits in the Sioux Falls, S.D., area was down slightly in July from July 2010. Residential construction increased from last year. The value of residential building permits in July increased significantly from the same period a year earlier in both the Sioux Falls and Minneapolis-St. Paul areas.

Commercial real estate markets were flat. Commercial real estate respondents to the Minneapolis Fed's ad hoc survey noted flat revenues and profits over the past three months. Comments from Minneapolis-St. Paul area contacts include the following: "There is very little activity in the leasing, sales and land development arena." "The market is full of fence sitters because of general uncertainty about the economy." Residential real estate markets grew. Home sales in July were up significantly from the same period a year ago in the Minneapolis-St. Paul and Fargo, N.D., markets. However, July pending sales of homes in the Sioux Falls area decreased from July 2010.

On balance, professional business services firms reported flat activity over the past three months. A third of services firms that responded to the ad hoc survey saw increased sales, while a third saw decreased sales. Respondents noted that profits were also flat, but they expect increased activity over the next three months. An information technology company noted that July sales were down due to reduced demand from the government and financial services areas.

Manufacturing activity increased slightly. A July survey of purchasing managers by Creighton University (Omaha, Neb.) showed that manufacturing activity increased in Minnesota and South Dakota, but declined slightly in North Dakota. A metal fabricator announced plans to expand a facility in northwestern Montana. Nearly three-quarters of manufacturing respondents to the Minneapolis Fed's ad hoc survey indicated that their sales increased in the past three months, and 60 percent expect them to increase in the next three months.

Energy and Mining
Activity in the energy and mining sectors continued at strong levels since the last report. Late-August oil exploration activity increased from mid-July. Iron ore shipments from District mines increased 18 percent in July from a year earlier, according to a Great Lakes shipping organization. Activity at Montana mines remains strong, driven by high metals prices, according to contacts.

Ninth District agricultural production is expected to decrease from last year, while prices remain strong. Montana and North Dakota durum wheat production estimates for 2011 were down a combined 57 percent from 2010, according to the U.S. Department of Agriculture. Spring wheat and soybean production estimates for District states were down 18 percent and 10 percent, respectively. In contrast, District corn production estimates increased about 5 percent over last year. Prices for many District agricultural commodities increased since the last report, including corn, soybeans, wheat, dairy, cattle and hogs; poultry prices decreased recently.

Employment, Wages, and Prices
Reports from labor markets include a mix of layoffs and new hiring. During a 20-day Minnesota government shutdown in July, 22,000 government employees were out of work. By delaying state funding and inspections, the shutdown also idled many construction projects across Minnesota. A bank recently announced plans to cut nearly 150 employees at its brokerage unit in Minneapolis. However, during July, Minnesota gained 8,200 private sector jobs. Minnesota auto dealers have started to hire more sales staff. About 11,000 new jobs related to oil drilling are expected in North Dakota, according to an announcement by a firm with operations there. According to the ad hoc survey, 19 percent of respondents expect to increase employment over the next three months, while 10 percent expect to decrease employment. A new fabrication plant in Montana will lead to 100 more jobs, and a sporting goods manufacturer in Minnesota announced plans to add 100 jobs over the next two years.

Wage increases remained moderate, although some contentious contract negotiations were reported. For example, a sugar beet refining company locked out 1,300 workers beginning Aug. 1.

Overall price increases were modest. A July Augustana College survey of Sioux Falls businesses indicated little change in prices received for their products and services. Except for gold, a number of metal prices have decreased since the last report, although they remain well above year-earlier levels. Diesel fuel and gasoline prices were still nearly a dollar per gallon higher than a year ago, but their rate of increase has slowed. Input costs increased over the past three months, according to 46 percent of the ad hoc survey respondents; only 9 percent indicated decreases.

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Last update: September 7, 2011