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Ninth District--Minneapolis

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The Ninth District economy grew at a modest pace since the last report. Solid growth was reported in some areas of consumer spending and in the energy and mining sectors. Slight to moderate growth was noted in commercial and residential real estate, professional services, manufacturing, and agriculture. Activity in the construction sector was down from a year ago, while the unexpected lack of snowfall dampened tourism. Labor markets showed continued signs of modest strengthening, while wage increases remained subdued. Prices generally remained level.

Consumer Spending and Tourism
Consumer spending increased during the holiday season. Holiday sales at a Minneapolis area mall were up more than 10 percent compared with a year ago. Sales at a North Dakota mall during late November and December were up about 8 percent over last year. A mall manager in Montana noted heavy traffic at the mall during the week before Christmas and the day after Christmas. Same-store sales at a Minnesota-based retailer increased about 2 percent in November compared with a year ago; Black Friday sales were particularly strong. A Minnesota-based sporting goods store reported that Internet sales on Cyber Monday (Nov. 28) increased 50 percent over last year. Warm weather set back some sales of winter apparel, but clear roads allowed shoppers to get to stores. A domestic auto dealer reported strong sales in December.

Tourism activity was down. A lack of snow and surprisingly warm weather stymied snowmobiling, ice fishing, and skiing in many areas. Tourism officials in Minnesota noted that the lack of snow was affecting businesses that cater to winter recreation. Low snowfall in Yellowstone National Park was affecting nearby businesses that offer winter tours of the park on snowmobiles and in snowcoaches. However, a ski resort in Minnesota reported strong preseason sales; the number of visits through the end of December was at expected levels. In western South Dakota, a snowmobiling-related business and a ski resort both have received calls from a number of people who are ready to visit once more snow falls.

Construction and Real Estate
Commercial construction activity decreased modestly over the past year. The value of commercial building permits in the Sioux Falls, S.D., area was down slightly in November from November 2010. Respondents to the University of St. Thomas's semiannual Minnesota Commercial Real Estate Survey (November) expected higher land and building costs, which should dampen construction. However, several commercial construction projects are under way or planned in Montana. Residential construction decreased from last year. The number of permitted residential units in the Minneapolis-St. Paul, Sioux Falls, and Billings, Mont., areas was down in November from a year ago, but increased in Fargo, N.D.

Commercial real estate market activity increased. According to the aforementioned University of St. Thomas survey, respondents expected growth in rents and occupancy but flat rates of return on investment. Industrial real estate activity increased since the last report, according to a large Minnesota commercial broker. Home sales in December were up from the same period a year ago in the Minneapolis-St. Paul area, and the inventory of homes for sale was at six-year lows; however, prices continued to decline. In the Sioux Falls area, November new listings were down, sales activity was flat, and prices decreased from a year ago.

Activity at professional business services firms increased since the last report. An information technology consulting firm noted a solid backlog of business for 2012. An architectural firm noted more potential projects up for bid, but said many projects never become reality. An accounting firm reported flat activity over the past month.

The District manufacturing sector expanded slightly since the last report. A November survey of purchasing managers by Creighton University (Omaha, Neb.) found that manufacturing activity increased in Minnesota and North Dakota, and was flat in South Dakota. A number of factory expansions were reported in eastern South Dakota, including at a plastics producer and a packaging firm. In southern Minnesota, a firm that produces pressurized storage tanks for the natural gas industry is expanding into a currently empty building, and a large plant that makes electronically shaded glass began operations after several years of development.

Energy and Mining
Activity in the energy and mining sectors continued to increase. A new wind energy project was announced in western Wisconsin. While District oil and gas exploration activity decreased slightly since the last report, it remained well above year-earlier levels. An oil transport facility expansion is planned in North Dakota that will add a rail car loading area and increase holding capacity by 80,000 barrels per day. Mining activity remained strong. A new venture on Minnesota's Iron Range to extract material for steel production from old mining dumps recently began operations at one site and made its first shipments; two more sites are planned.

Growth in the agricultural sector moderated, as some commodity prices declined. Prices received by farmers for wheat, corn, hogs, and dairy products decreased in December from the previous month. Cattle, poultry, egg, dry bean, and hay prices increased in December from the previous month. Meanwhile, a partnership announced the development of a large grain-loading facility in Minnesota.

Employment, Wages, and Prices
Labor markets showed continued signs of modest strengthening. A pharmacy benefits management company recently announced plans to add 300 jobs in Minnesota. A bank is hiring almost 80 more workers at a call center in South Dakota. Bank directors noted that in the Dakotas and some parts of Montana, employers would hire if they could find workers; some of these employers have started to offer relocation packages as an incentive. According to a recent survey by an employment services firm, 15 percent of respondents in Minneapolis-St. Paul expect to increase staffing levels during first quarter 2012, while 8 percent expect to decrease staff. A year ago, 10 percent expected to increase hiring, while 6 percent expected decreases. Minnesota initial claims for unemployment benefits decreased 18 percent in November compared with a year earlier.

Wage increases were subdued. Several contacts noted small wage increases at their firms. A Minnesota manufacturer of residential windows reported that its employees will go without an annual bonus for the third straight year, but the company also hasn't laid anyone off during those three years.

Prices generally remained level. End-of-December Minnesota gasoline prices were flat since the last report, and only 18 cents per gallon more than a year ago. Overall metals prices were level since the last report and lower than a year ago. A Minnesota-based electronics retailer heavily discounted products at its stores during the early part of the holiday shopping season. However, a bank director noted that a number of District manufacturers were planning to raise prices in 2012.

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Last update: January 11, 2012