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Ninth District--Minneapolis

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The Ninth District economy grew modestly since the last report. Increases in activity were noted in consumer spending, commercial real estate and construction, manufacturing, mining, and energy. Meanwhile, tourism, agriculture, construction, and residential real estate and construction activity decreased. Since the last report, employment increased and wage growth accelerated slightly. Significant price increases were noted for some building and energy products.

Consumer Spending and Tourism
Overall consumer spending was up slightly. A North Dakota mall manager noted that back-to-school sales were solid. Another mall manager in North Dakota noted that sales were up about 1 percent in July compared with a year ago, while activity in early August was down slightly. A major Minneapolis-based retailer reported same-store sales up 3 percent in July compared with a year ago. Recent traffic at a Montana mall was up 3 percent from a year ago, while sales were up 6 percent.

A representative of an auto dealers association in Montana noted that overall recent sales were down for new vehicles, while the used-car market was as strong as last year. Truck and SUV sales were down, while sales of more fuel-efficient vehicles were up. An auto dealer in the Minneapolis-St. Paul area noted that used-car sales were strong in July as customers switched from trucks and SUVs to smaller vehicles.

Overall, tourism was down slightly from a year ago. The number of visits to attractions in South Dakota was down from last year in July, including about a 7 percent decrease for Mount Rushmore and a 9 percent decrease in retail sales at the Sturgis motorcycle rally. Visitor counts were down slightly from a year ago in northwestern Wisconsin, but resort bookings and retail sales were solid, according to an official. Travelers seem to be staying closer to home--not as many tourists are making long trips. Meanwhile, tourism activity in western Montana was up from a year ago.

Construction and Real Estate
Commercial construction activity increased, while residential construction softened. A representative of a commercial property firm noted recent increases in construction activity for industrial, office, medical, and retail developments in the Minneapolis-St. Paul area. For example, developers announced plans for a 700,000-square-foot office development in suburban Minneapolis, and medical centers are building over 835,000 square feet of additional space. Recent commercial permits were above year-ago levels in Sioux Falls, S.D., and Grand Forks, N.D. Residential building permits in July for Minneapolis-St. Paul were 37 percent below their 2005 levels. Residential construction slowed in Rochester, Minn., and Fargo, N.D. Bank directors from western Montana noted the home-building boom there has eased.

Commercial real estate was solid. The office market in Minneapolis-St. Paul saw further declines in vacancy rates in July; however, absorption of industrial space eased amid higher rents. Commercial real estate brokers in Sioux Falls described the market there as strong, and Fargo saw heavy demand for retail space.

Meanwhile, residential real estate weakened further. The number of homes on the market continued to climb in Minneapolis, although at a slower pace in recent weeks, with sales volumes falling. July home sales were down 26 percent from a year ago in Fargo, while the demand for high-end homes eased in Sioux Falls.

Manufacturing activity expanded. An August survey of purchasing managers by Creighton University (Omaha, Neb.) indicated solid growth of manufacturing activity in the Dakotas and Minnesota. A paper mill in the Upper Peninsula of Michigan will invest over $50 million in capital improvements over the next two years. A new meat packing plant is planned in South Dakota. In Minnesota, an airplane component manufacturer plans to expand a facility and an all-terrain vehicle engine manufacturing plant is under construction. A lime products company plans to add production capacity in northwestern Wisconsin. A construction equipment manufacturer in Wisconsin reported strong demand, while a Wisconsin lumber producer said demand from residential building materials has declined sharply.

Energy and Mining
Activity in the energy and mining sectors increased since the last report. Oil and gas exploration and production in the District increased, and the alternative energy industry, including wind, biodiesel, and ethanol, continued to expand. Mining production is robust across the District. A Montana gold mine plans to reopen early next year after shutting down last year due to landslides. Several companies continue to explore new mining sites throughout the District.

Agricultural activity decreased since the last report. Drought conditions were evident across most of the District, which negatively affected crop yields. Responses to the Minneapolis Fed's second-quarter (July) agricultural credit conditions survey indicate that overall agricultural income will be down in the third quarter of 2006 due to reduced yields and higher input costs. Over half of South Dakota's sorghum, sunflower, and alfalfa crops are rated as "poor" or "very poor" by the U.S. Department of Agriculture. Most of the pastureland and rangeland in Minnesota and the Dakotas were rated as "poor" or "very poor." However, a record cranberry crop is expected in Wisconsin.

Employment, Wages and Prices
Labor markets tightened slightly since the last report. Nonfarm employment in District states was up 1.9 percent in July compared with a year ago. Employers in the Upper Peninsula reported a severe shortage of available workers for jobs involving electrical, hydraulic, and mechanical systems. A survey of online recruiting sites showed that Minneapolis-St. Paul area job postings in July remained unchanged from June, but at relatively strong levels; postings for science and education were up, while those for health care were down.

In contrast, a light truck manufacturer recently announced plans to reduce shifts from two to one by the end of the year, which will affect 700 jobs. An airline with service to North Dakota airports will lay off 85 ground workers by the end of the year.

Overall wage growth accelerated slightly. Wages paid by farm operators to hired workers in Minnesota, Michigan, and Wisconsin increased more than 5 percent in July compared with a year earlier. Wages for manufacturing workers in District states increased 2.6 percent in July compared with a year ago. In July 2005, wages increased 1.9 percent from a year earlier.

Price increases were noted for some building and energy products. Prices for asphalt, concrete, copper, steel mill, and plastic construction products posted notable increases. Gasoline prices in Minnesota for the third week in August were down slightly from a few weeks earlier, but up 37 cents per gallon from a year ago. A bank director noted that several contacts mentioned the high cost of health insurance as a key issue facing their businesses.

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Last update: September 6, 2006