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Ninth District--Minneapolis

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The Ninth District economy grew at a steady pace since the last report. Increases in activity were noted in consumer spending, manufacturing, tourism, construction, mining, energy, agriculture, and commercial real estate. Meanwhile, residential real estate softened. Since the last report, the pace of employment and wage growth increased slightly. Significant price increases were noted for fuel and some construction materials.

Consumer Spending and Tourism
Overall consumer spending showed solid growth since the last report. A major Minneapolis-based retailer reported same-store sales up about 6 percent in May compared with a year ago. A mall manager in North Dakota said that traffic on Mother's Day weekend was fairly brisk. In contrast, same-store sales at a Minneapolis area mall in April were lower than a year ago.

Car dealers in south-central Montana noted that while consumers are more interested in purchasing four-cylinder cars, sales of trucks and SUVs were still solid. At a Minnesota dealership, May sales were strong, especially for fuel-efficient vehicles.

Spring tourism activity posted modest increases, while tourism officials are cautiously optimistic for the summer season despite higher gas prices. In Duluth, Minn., recent tourism spending was up about 5 percent compared with a year ago, and inquiries for summer activities were strong; business convention spending was about even with a year ago. Tourism businesses in northwestern Minnesota reported a positive outlook for summer activity. Tourism in Montana is expected to grow 2 percent in 2006. According to a tourism official in the Black Hills area of South Dakota, advanced summer bookings started slow but recently reached normal trends.

Construction and Real Estate
Construction was robust. Commercial construction was about level with last year's strong building season in Bismarck, N.D. Developers announced plans for a 1.3-million-square-foot office and commercial development in a Minneapolis suburb. The Minnesota Legislature approved funding for two large stadiums in Minneapolis-St. Paul. Construction began on downtown condos in both Sioux Falls, S.D., and Fargo, N.D. More than $94 million in spending on road and bridge construction and $84 million on state university projects is planned in Montana this summer. However, April year-to-date residential and commercial permits for Rochester, Minn., were down 12 percent in value from last year.

Residential real estate continued to cool. New listings in Minneapolis-St. Paul during the third week of May were up 18 percent over last year, while pending sales were down 21 percent. Inventories in Sioux Falls were up 18 percent from a year ago. In contrast, home sales remained strong in western Montana. The commercial real estate market grew steadily. A bank director reported office, retail, and industrial real estate in Sioux Falls as strong overall but down from last year's record levels. In Minneapolis, commercial office absorption continued to increase; for example, a large company is moving to a 188,000-square-foot office tower downtown. A representative of a commercial real estate firm in Minneapolis-St. Paul noted that businesses that require relatively high volumes of office space were having difficulty finding openings.

Manufacturing activity expanded. A May survey of purchasing managers by Creighton University (Omaha, Neb.) indicated strong growth of manufacturing activity in the Dakotas and Minnesota. A safety gear manufacturer in Minnesota is expanding into a new plant. Meanwhile, a sewing company in the Upper Peninsula of Michigan reported strong demand and is planning to add space. A commercial bakery in Montana is adding production space, machinery, and equipment.

Energy and Mining
Activity was up slightly in the energy and mining sectors. The number of oil rigs operating in the District increased since the last report. In addition, several new coal-fired power plants, wind farms, and ethanol distilleries are under construction or in the permitting process. One Minneapolis Fed Agriculture Advisory Council member noted that ethanol and biodiesel plants are "springing up like popcorn." Meanwhile, nearly all open mines in the District are producing at near full capacity. Several companies are exploring or permitting new mining sites throughout the District.

Agricultural activity increased slightly since the last report, but prospects for farm income have deteriorated. A good calving and lambing season is mostly complete across the District, with some minor losses reported in areas due to inclement weather. The U.S. Department of Agriculture reported that crop plantings and progress are slightly ahead of last year's pace in most District states. Spring storms aided moisture conditions across most of the District, although central South Dakota is dry. This year's estimated winter wheat yields per acre are up, but production in Montana is down 14 percent from 2005. Responses to the Minneapolis Fed's first-quarter (April) agricultural credit conditions survey indicate that overall agricultural income will be down in the second quarter of 2006 due to higher costs of fertilizer, fuel, and machinery. Meanwhile, the USDA recently estimated that prices of corn, soybeans, and cattle will decrease this year compared with last year.

Employment, Wages, and Prices
Employment grew moderately since the last report. In North Dakota, a wind turbine blade plant will soon add up to 130 jobs, and in South Dakota, a communications company is adding 120 jobs. Two business schools in Minneapolis-St. Paul reported an approximate 20 percent increase in the number of graduates with job offers this year; accounting and finance were among the top areas. North Dakota members of the Minneapolis Fed's Advisory Council on Small Business and Labor noted difficulty finding available labor, particularly low-skilled workers. Preliminary results of the inaugural Minneapolis Fed's May survey of professional services companies indicated increased employment and decreased availability of labor for the next four quarters.

A slight increase in the pace of wage raises was noted since the last report. In the Minneapolis-St. Paul area, wages for many trades, hospitals, and manufacturers were up by about 3 percent to 4 percent. A bank director noted that the starting wage for unskilled workers in Bozeman, Mont., is $6.50, well above the minimum wage. Preliminary results of the professional services survey show an expected average wage increase of about 3 percent during the next four quarters.

Significant price increases were noted in fuel, health insurance, and some construction materials. Gasoline prices in Minnesota were up 79 cents at the end of May compared with a year ago. Freight fuel surcharges have increased to as high as 27 percent of total mileage, according to a Montana bank director. A number of construction materials increased in price, including copper, insulation, steel, and wallboard; in contrast, some lumber prices softened. Preliminary results of the professional services survey reveal that 73 percent of respondents expect overall inflation to increase during the next four quarters.

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Last update: June 14, 2006