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Ninth District--Minneapolis

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Overall economic activity in the Ninth District was steady with some signs of recovery. The manufacturing, energy, mining and residential real estate sectors saw moderate increases. Agriculture, consumer spending and tourism were mixed, while activity in services was flat. Decreases in activity occurred in construction and commercial real estate. Labor markets remained weak, but some signs of improvement were noted. Meanwhile, wage increases were modest, and overall prices were generally unchanged.

Consumer Spending and Tourism
Retail spending was mixed. A major Minneapolis-based retailer reported that same-store sales in September were down 2 percent compared with a year earlier. A Minneapolis area mall and a Montana mall reported that recent sales were flat compared with a year ago. Contacts in northwestern Montana said they generally have not noticed increases in retail spending. Meanwhile, September traffic at a North Dakota mall started stronger following a relatively slow August, when same-store sales were down slightly.

Auto sales slipped in September following the end of the cash-for-clunkers program. An auto dealer in North Dakota reported that sales dropped to more typical levels after the program ended. Inventory levels of new cars were down substantially; some dealers were purchasing newer used vehicles at higher prices to make up for the lack of new-car inventory.

Tourism activity was mixed. The number of visitors at several attractions in the Upper Peninsula of Michigan during late summer and early fall was at or above year-ago levels; however, lodging revenue was down almost 10 percent, according to a tourism official. Tourism spending in northwestern Montana was down slightly from a year ago. Meanwhile, attendance at the Minnesota State Fair during late August and early September was up about 6 percent compared with last year.

Construction and Real Estate
Commercial construction was at low levels. A construction products supplier in Minnesota said that drops in spending on state and locally financed projects have been offset by federal stimulus financed projects. A representative of a contractors' association in Montana pointed to several large infrastructure projects, including coal and hydroelectric power. However, private office, industrial and retail development was very weak across the District. Residential construction activity was slow. The value of September residential permits decreased 39 percent from a year earlier in the Minneapolis-St. Paul area and decreased 19 percent in Sioux Falls, S.D. A Montana contractor reported slow activity in recent high-growth areas, but activity was up in Great Falls, Helena and Billings.

Commercial real estate markets saw continued sluggish activity. A Minneapolis-St. Paul commercial real estate firm said office subleases have increased as tenants required less space, and that more landlords were offering "as-is" deals with lower rents in exchange for fewer amenities. Retail vacancy remained elevated in markets across the District. Residential real estate showed signs of improvement, as buyers scrambled to take advantage of the federal first-time home buyer tax credit before it expires on November 30. Pending sales in the Minneapolis-St. Paul area in September were about 24 percent higher than levels a year earlier. Home sales fell slightly from last year in Sioux Falls, while sales in Bismarck, N.D., were about even with last year's strong levels.

Overall activity was stable in the professional business services sector. Over half the respondents to an October informal Fed poll of professional business services firms reported that September activity was flat at low levels. The remainder of respondents were evenly split between growth and contraction. Contacts at legal firms said that business was level, although the type of work had shifted toward work-outs and litigation. Some information technology consultants noted an uptick, while engineers reported fierce competition and delays in getting paid. Contacts from the management consulting area noticed a slight downturn in activity. Architects continued to report very few projects to bid on.

Manufacturing output was up. A September survey of purchasing managers by Creighton University (Omaha, Neb.) indicated that manufacturing activity increased in Minnesota and the Dakotas because of strong new orders. A Minnesota metal fabricator noted plans to increase production by adding shifts. A diversified manufacturer noted stable orders over the past month. However, a cement plant in Montana ceased production, and a North Dakota construction equipment maker shut down a factory.

Energy and Mining
Activity in the energy and mining sectors increased slightly. Late-September oil and gas exploration inched up from mid-August. Several large wind energy projects were planned in District states. A new iron ore processing plant plans to open, and mines in northern Minnesota were increasing production.

Agricultural conditions were mixed. The sugar beet harvest was larger than previously expected. Montana winter wheat crop planting was ahead of schedule. Favorable growing conditions occurred during September across most of the District. However, parts of western Wisconsin and Minnesota were in severe drought, and the progress of harvest of major District crops was behind the five-year average. Meanwhile, cattle, dairy and hog producers' profit margins have been squeezed.

Employment, Wages, and Prices
Labor markets remained weak, but some signs of improvement were noted. Minnesota initial claims for unemployment insurance were up 75 percent in August compared with a year ago, but the pace of increase seems to have leveled over the past few months. A Minnesota manufacturer announced plans to create 50 new positions to build specialty cranes. Also in Minnesota, a vehicle plant increased overtime hours in September, and an auto parts maker hired back 145 employees due to increased demand. A representative of a career center at the University of Minnesota noted that a recent job fair had more full-time jobs offered than a fair last spring. However, an industrial heat exchanger plant in southwestern Wisconsin announced plans to lay off 90 employees.

Wage increases remained modest. According to respondents to the recent St. Cloud (Minn.) Area Business Outlook Survey, 15 percent expect to increase employee compensation over the next six months, down from 35 percent in last year's survey.

Overall prices were generally unchanged. Only about 15 percent of respondents to the St. Cloud survey expect increases in their own product prices over the next six months, down from 33 percent a year ago. Minnesota gasoline prices declined 12 cents per gallon in late September from a month earlier and were down more than $1 per gallon from a year ago. Lower natural gas prices and an expected mild winter could reduce home heating bills up to 15 percent in the Midwest.

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Last update: October 21, 2009