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Ninth District economic activity was mixed from early January through late
February. Agriculture, home building, and mining grew. Manufacturing, tourism,
and energy were mixed. Consumer spending was flat and commercial construction
was down. Over this period, labor markets loosened slightly. Overall wage and
price increases were modest. Significant price increases were noted in heating
costs, gasoline, and tuition.
Construction and Real Estate
Commercial building was generally down. In 2003, only about 200,000 square feet
of new space is planned in the Minneapolis-St. Paul area, down from 1.2 million
square feet in 2002, according to a commercial real estate firm. A Minneapolis
firm that reconfigures office space and moves furniture reported less work in
January and February than in the last months of 2002. However, in Sioux Falls,
S. Dakota, building permits were up in January compared with a year ago; commercial
realtors, developers, and architects are expecting a good year in 2003, according
to a city official.
Home building and residential real estate activity were solid. The number of
housing units authorized in the Minneapolis-St. Paul area increased 14 percent
in January compared with a year earlier. "Every indication is that 2003 should
be another very busy year for builders," said a representative of a Minneapolis-St.
Paul area builders association. However, the vacancy rate for apartments in
Minneapolis-St. Paul increased to 6.6 percent in the fourth quarter of 2002,
up from 4 percent a year earlier. A representative of a realtors association
in La Crosse, Wis., expects 2003 to be another good year for single-family home
sales, but says 2003 will likely fall short of the 2002 sales record.
Consumer Spending and Tourism
Overall retail sales were flat. A major Minneapolis-based department store and
discount retailer reported that same-store sales were essentially flat in January
compared with a year ago. According to a representative of a chamber of commerce
association, retailers in Minnesota were not complaining about post-holiday
sales, but they carried low levels of inventory. A Minneapolis area mall manager
noted flat sales in January compared with a year ago, while a mall in Montana
reported sales down slightly in January from last year. In contrast, another
Minneapolis area mall manager reported good traffic levels in January and February,
while a mall manager in North Dakota noted that the mall's annual post-holiday
sale had higher traffic levels than a year earlier.
Auto sales dipped in January from December levels. According to a representative
of an auto dealers association in Minnesota, after a good December, auto sales
have "fallen off a cliff." An auto dealer in Minnesota noted a significant slowdown
in sales at several stores in January.
Winter tourism was mixed, primarily due to weather. The first seven weeks of
the winter tourism season were a "washout" due to a lack of snow in the Black
Hills area of South Dakota, according to a tourism official; however, since
the end of January, business has been up about 10 percent over last year. Businesses
in northern Wisconsin that depend on snowmobiling and cross-country skiing are
hurting, reported a university extension agent. In contrast, plenty of snow
in the Upper Peninsula of Michigan led to a recent 10 percent increase in lodging
expenditures in January compared with last year.
Manufacturing activity was mixed. A January survey of purchasing managers by
Creighton University (Omaha, Neb.) indicated increased manufacturing activity
in Minnesota and the Dakotas. As evidence, a Minnesota prescription drugs manufacturer
plans to significantly increase capital purchases and employment, and an industrial
equipment maker will expand production in western Wisconsin. However, preliminary
results from a January survey of District manufacturers by the Federal Reserve
Bank of Minneapolis and the Minnesota Department of Trade and Economic Development
revealed that businesses expect employment and capital investment to decrease
slightly in the first half of 2003 from the second half of 2002. Several District
manufacturing facilities recently announced plans to close, including a western
Wisconsin tool factory and an electronic component plant in southern Minnesota.
Energy and Mining
Activity in the energy sector was mixed, while the mining sector was up slightly.
Mid-February District oil and natural gas exploration levels were down slightly,
while oil production was up slightly from early January. Meanwhile, two District
iron ore mines were operating at near capacity and expect to increase employment.
District metal mines enjoyed significant increases in gold prices and moderate
price increases for other metals.
The agricultural economy was generally up due to higher commodity prices. The
U. S. Department of Agriculture reported that farmers and ranchers received
slightly higher prices for their products in January compared with December.
January hog and beef prices were up 5 percent and 3 percent, respectively, from
December. January poultry and egg prices were up 13 percent from a month earlier.
However, January dairy prices were down 1 percent. In response to higher wheat
prices, Montana farmers planted 21 percent more acres of winter wheat than last
year, despite continued drought conditions. Ranchers in the western part of
the District have reduced herds due to the drought and, therefore, a smaller
calf crop is expected this year.
Employment, Wages, and Prices
Several upcoming layoffs were announced since the last report. In Rochester,
Minn., a high-tech manufacturing company will lay off most of its 550 workers
by June. A financial services organization with headquarters in Minneapolis
just announced plans to lay off 500 employees companywide due to merger issues.
In North Dakota, a bus manufacturing plant will lay off up to 230 employees.
A credit card issuer recently announced plans to cut 100 jobs in Minnesota.
In several areas of the District, state and local government budget problems
may be addressed in part through job reductions. For example, more than 1,000
Minnesota state workers could be laid off by June 30. School Districts in the
Upper Peninsula of Michigan noted that reductions in state aid will likely result
In contrast, a health benefits company in Duluth, Minn., plans to hire another
60 to 70 employees over the next six months. A call center in South Dakota has
hired 160 people since the beginning of the year and plans to hire 175 more.
A telemarketing company that opened in South Dakota in February plans to hire
as many as 50 employees, and a call center in Billings, Mont., will add 50 jobs.
Wage increases were modest. About 75 percent of respondents to a recent survey
by the St. Cloud (Minn.) Area Quarterly Business Report indicated no change
in employee compensation during the last three months of 2002. In Eau Claire,
Wis., two large unions agreed to pay a portion of their health insurance premiums
in exchange for pay increases of 3.75 percent during each of the next two years.
Overall price increases were modest, except for significant increases in heating
costs, gasoline, and tuition. Only 10 percent of respondents to the St. Cloud
(Minn.) Area Quarterly Business Report poll raised product prices during the
last three months of 2002, while 16 percent decreased prices. Heating costs
may rise as much as 10 percent to 35 percent over a year ago in several areas
of the District due to colder weather and higher natural gas prices, according
to energy companies. Gasoline prices at pumps in Minnesota were about 50 percent
higher than a year ago. Tuition and fees at four-year public universities in
North Dakota were up 14 percent for this academic year.