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Ninth District--Minneapolis

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Overall economic activity in the Ninth District was up slightly from the time of the last report. The services, manufacturing, energy, mining and residential real estate sectors saw moderate increases. Agriculture and tourism were mixed, while consumer spending was stable. Decreases in activity occurred in commercial construction and real estate. Labor markets remained lackluster, but signs of improvement were noted. Meanwhile, wage increases were modest, and overall prices remained level.

Consumer Spending and Tourism
Overall retail spending was stable. A major Minneapolis-based retailer reported that same-store sales in October were essentially even with a year earlier. While one Minneapolis area mall saw a 2 percent decrease in traffic during October, another saw a 2 percent increase; store owners expect holiday sales to match last year's levels or decrease slightly. Sales at a Montana mall were down slightly in September compared with a year ago; stores have pulled back on inventory going into the holiday season, according to the mall manager. A Minnesota-based restaurant chain reported that patronage has stabilized after heavily discounting its menu. A Minnesota auto dealer reported that vehicle inventories have been built back up following the "cash for clunkers" program; recent new car sales were flat, while used car sales were strong. In southwestern Montana, two new second-hand stores have opened and an existing thrift store is considering expansion.

Tourism conditions were mixed. A Minnesota-based travel agency noted that business travel was up slightly in September and October compared with a year earlier, while leisure travel was down about 20 percent. However, holiday bookings were up slightly compared with last year. Another Minnesota-based travel agency reported that October showed improvement for both business and leisure travel, although levels were still below a year ago.

Construction and Real Estate
Commercial construction was slow. A commercial builder in the Minneapolis-St. Paul area said there were few projects beginning or under way there. Preliminary results of the Minneapolis Fed's business outlook poll indicated that more than 80 percent of overall construction industry respondents expect sales to be down or unchanged in 2010. In contrast, a bank director from Billings, Mont., noted several large retail and hotel project starts in the third quarter. Residential construction showed signs of stabilization. The value of October permits in Sioux Falls, S.D., was up 4 percent from a year earlier. A $13 million condominium project began in Escanaba, Mich.

Commercial real estate markets saw continued sluggish activity. A Minneapolis area commercial real estate firm reported that vacancy increased in all sectors in the third quarter, with the largest increases in the office and industrial markets. Retail vacancy increased in markets across the District. Meanwhile, the residential market continued to recover. The dollar volume of closed sales in Minneapolis-St. Paul increased nearly 16 percent in October from a year earlier. Overall sales in Duluth, Minn., were down from a year earlier, but sales of homes under $150,000 were up as first-time homebuyers took advantage of federal tax credits. In contrast, the high-end home market in western Montana was very slow, according to contacts there.

Overall activity was up in the professional business services sector. Based on results from the business outlook poll, respondents from the services sector expect increased sales in 2010 but decreased investment in equipment. Contacts from information technology and accounting industries noted an upturn in activity over the past three months.

Manufacturing output was up. Based on results from the business outlook poll, respondents from the manufacturing sector expect increased sales in 2010. Preliminary results of a November manufacturers survey by the Minneapolis Fed and the Minnesota Department of Employment and Economic Development indicated that manufacturers expect increased orders and production in 2010 after low levels in 2009. An October survey of purchasing managers by Creighton University (Omaha, Neb.) showed that manufacturing activity increased in Minnesota and the Dakotas. A gun barrel producer plans to open a new facility in South Dakota. An electric heater maker in North Dakota is slowly increasing production.

Energy and Mining
Activity in the energy and mining sectors increased slightly. Mid-November oil and gas exploration increased from early October. Several District power lines to transport wind energy were planned or under way. Since the last report, an iron ore mine in northern Minnesota restarted a furnace line and increased production.

Agriculture was mixed. The Minneapolis Fed's third-quarter (October) survey of agricultural credit conditions indicated that lenders expect overall agricultural income and spending to be down in the fourth quarter. The harvest is behind the pace of a year ago for most major District crops, and a wet October has created mold problems for some producers. However, production is expected to increase for corn and soybeans from last year's large crop. The U.S. Department of Agriculture increased its estimate of corn and soybean prices.

Employment, Wages, and Prices
Labor markets remained lackluster, but signs of improvement were noted. A Minnesota shoe manufacturer recently announced plans to lay off 60 workers after operating at reduced capacity for a number of months. A Minnesota-based staffing services company noted that recent temporary placements in manufacturing firms were down 15 percent compared with a year ago, but demand has recently stabilized. October initial claims for unemployment insurance were 24 percent higher than a year ago in Minnesota. According to the business outlook poll, 17 percent of respondents expect to increase staffing levels next year while 25 percent expect to decrease staff; a year ago 34 percent expected increases while 21 percent expected decreases.

In contrast, a cleaning products manufacturer was adding 200 sales positions in Minnesota, while another company will create 160 customer service and management jobs over the next six months in South Dakota. Meanwhile, another staffing services firm reported increased requests for workers in the Minneapolis-St. Paul area.

Wage increases were modest. Results of the business outlook poll show that 100 percent of respondents expect wages in their communities to increase no more than 3 percent next year; a majority expect increases of no more than 1 percent. A bank director noted that recent compensation levels in the agricultural industry in eastern Montana and western South Dakota were on par with last year.

Prices remained relatively level. According to the survey of manufacturers, 23 percent of respondents expect to increase their product prices over the next 12 months while 24 percent expect to decrease prices. Bank directors reported that prices for steel, industrial grade lumber and zinc were up, while prices for cattle were down.

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Last update: December 2, 2009