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Federal Reserve Districts

Ninth District--Minneapolis

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The Ninth District economy grew at a moderate pace since the last report. Increases in activity were noted in consumer spending, manufacturing, tourism, mining, construction and commercial real estate. Meanwhile, agriculture and residential real estate softened. Labor markets showed signs of tightening in several parts of the district, and overall wage increases were moderate. Significant price increases were noted in heating, sugar and some building materials.

Consumer Spending and Tourism
Consumer spending expanded since the last report. A major Minneapolis-based retailer reported same-store sales up 3.6 percent in February compared with a year ago. Sales and traffic were higher at a Minneapolis area mall during January and February compared with a year ago. A mall manager in North Dakota reported strong sales in January relative to a year earlier, while sales during the first part of February were flat.

A representative of an auto dealers association in South Dakota reported increased sales in January compared with a year ago, but sales slowed during February. Sales were up slightly in January, but down in February, according to a Minnesota dealer; domestic vehicle sales were in a slump, while several imported brands sold well.

Winter tourism activity was above year-ago levels. A representative of a ski resort in northern Minnesota reported strong gains in lift ticket sales and area lodging reservations compared with a year ago; area cross country ski trails were in good condition. Tourism activity in northwestern Wisconsin during January and February was above year-ago levels. A strong start to the season at a ski resort in southwestern Montana was slowed somewhat by a frigid Presidents' Day weekend, but lift tickets and lodging were still above levels from a year ago.

Construction and Real Estate
Construction was strong. A warm January led to higher construction activity throughout the Ninth District. Contractors in Minneapolis-St. Paul described the number of recent building projects up for bid as steady to up from last year, when activity was at record levels. Construction in Minnesota and the Dakotas is projected to grow in 2006 by 7.4 percent in nonresidential building and 2.7 percent in residential. Developers announced plans for a $70-80 million athletic center on an industrial site in Bloomington, Minn., and a $60-70 million office tower in Golden Valley, Minn. Redevelopment plans for a block in downtown Minneapolis at an estimated $180 million were also announced. The construction boom in southwestern Montana continued.

Real estate was mixed. In Minneapolis-St. Paul, the supply of single-family homes for sale in recent weeks has been up as much as 34 percent over last year, but pending sales were down. However, an oil field boom in eastern Montana and western North Dakota has led to strong housing demand in those areas, a bank director reported. The Minneapolis-St. Paul office market is at its lowest vacancy rate in five years, with industrial absorption at its highest since 1999. Recent weeks have seen two of the largest office buildings in Minnesota put up for sale, with a combined 2.6 million square feet of office space and an estimated value of half a billion dollars. Analysts expect 3 million square feet of retail space to hit the market in the coming year.

Manufacturing activity expanded. A February survey of purchasing managers by Creighton University (Omaha, Neb.) indicated growing manufacturing activity in the Dakotas and Minnesota. In Montana, a producer of large equipment transport trailers plans to double capital purchases this year to meet rising demand. A paper producer plans to double its production at a mill in Minnesota. Due to strong demand for respirators, a manufacturing plant in South Dakota is investing in new equipment. However, in the face of strong foreign competition, an electronic components producer closed a South Dakota facility.

Energy and Mining
Activity in the energy sector was stable at a high level and increased in the mining sector. Oil and gas exploration and production were about level from early January through late February. A Montana talc mine is investing in new equipment, and a cement producer is doubling its capital expenditures from last year. Nearly all open mines in the western portion of the district were producing at near full capacity. Taconite mines in northern Minnesota and the Upper Peninsula of Michigan continue to operate at full capacity and are expected to operate at near capacity throughout 2006.

The agriculture sector was down. Responses to the Minneapolis Fed's fourth quarter (January) agricultural credit conditions survey indicated that after a strong finish to 2005, overall agricultural income and capital spending would be down in the first quarter of 2006 due to higher costs of fertilizer, fuel and machinery. Hog prices are expected to decrease throughout 2006. Meanwhile, projected wheat prices increased modestly, while corn, soybean and cattle prices were stable. Soil moisture conditions improved across much of the district.

Employment, Wages and Prices
Labor markets showed signs of tightening in several parts of the district. A director commented that in eastern Montana, "If you are 18 years old and are willing and able to do manual labor, you are hired." In western North Dakota, oil rig operators noted a shortage of workers with a standing list of 150 job openings posted on a job Web site. A chamber of commerce representative in central Minnesota said finding skilled workers will be the biggest challenge for area businesses during the upcoming year. According to a state survey, the number of job openings in Minnesota increased 22 percent during fourth quarter 2005 compared with a year earlier, but remained 56 percent below fourth quarter 2000. Initial claims for unemployment insurance in Minnesota were down slightly during the first few weeks of February compared with a year earlier. A manufacturer of racks and cabinets for technology networks plans to hire 75 workers over the next two years in South Dakota, and a medical claims processing company recently announced plans to add 140 jobs in North Dakota.

In contrast, a mortgage call center in Minnesota will close this spring, resulting in 200 job losses, and a small Minnesota beef packer suspended operations, affecting 125 workers. A manufacturer of data record products is expected to lay off 80 workers in North Dakota.

Overall wage increases were moderate. While increases in salaries for professional positions were moderate, bank directors noted pressure on wages for manual labor jobs in several parts of the district.

Significant price increases were noted in heating, sugar and some building materials. The February price of natural gas for heating homes in Minnesota was up 22 percent from a year ago, but down 11 percent from January. Sugar prices increased since the last report and were 20 percent higher than a year ago. Prices for building products such as asphalt, concrete, gypsum and plastic products increased recently and are notably higher than prices a year ago. Steel prices were stable at relatively high levels. Gasoline prices per gallon in Minnesota during the last week of February were slightly below prices in early January, but were 31 cents above a year ago. Recent diesel prices have stabilized at lower levels, but were 35 cents per gallon higher than a year ago.

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Last update: March 15, 2006