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The Ninth District economy grew since the last report. Increases in activity
were noted in consumer spending, manufacturing, energy, mining, and agriculture.
Meanwhile, tourism activity was mixed, and residential real estate and construction
activity decreased. Signs of a tighter labor market were noted. Overall price
increases were modest as fuel prices decreased.
Consumer Spending and Tourism
Overall consumer spending rose moderately, and prospects for holiday sales were
generally positive. A major Minneapolis-based retailer reported same-store sales
up about 4 percent in October compared with a year ago. Recent sales at a Minneapolis
area mall were up 4 percent from a year ago; expectations for the holiday season
were positive. Sales at a North Dakota mall were up 3 percent in October compared
with last year, according to the mall manager, and store owners were optimistic
for the holiday season. According to members of the Minneapolis Fed's board
of directors, retailers in the Bozeman, Mont., area are expecting robust holiday
sales and retailers in the Billings, Mont., area are expecting sales at levels
similar to last year. A survey of holiday spending plans in the Minneapolis-St.
Paul area by researchers at the University of St. Thomas suggests that holiday
spending in 2006 will be up slightly from 2005. A St. Paul area mall manager
said that recent sales activity was comparable with last year. New and used
car and truck sales were relatively solid during the past two months, according
to an auto dealer in Minnesota.
Overall tourism activity was mixed. Fall tourism in northern Minnesota and
Wisconsin was up from last year, according to Bank directors. The number of
deer hunting licenses issued this fall was slightly above last year's level
in Minnesota. After a strong September, October tourism activity was down about
7 percent from last year's level in western South Dakota, according to an official.
Crossings at the International Bridge in the Upper Peninsula of Michigan were
down 6 percent in October compared with a year ago.
Construction and Real Estate
Commercial construction was up. Recent commercial construction activity was
robust in the Bismarck, N.D., area, according to a representative of a commercial
real estate firm there. The value of October commercial building permits in
Sioux Falls, S.D., was about even with last year's record levels, and office
construction was up slightly. A Minneapolis developer hired a design firm to
begin plans for a large new office tower in its central business district. Plans
were announced for the redevelopment of a historic skyscraper into a luxury
hotel in downtown Minneapolis. However, residential construction continued to
slow. October residential construction permits for Rochester, Minn., were down
42 percent in value from a year earlier. The value of new permitted housing
in October fell 17 percent in Sioux Falls from last year's record levels.
Commercial real estate activity continued at a fast pace. Industrial, retail
and office markets in the Minneapolis area saw positive absorption in the third
quarter; office absorption is expected to top 1 million square feet there by
year end, and lease rates are rising. Residential real estate continued to slide.
The median home sales price for Minneapolis-St. Paul fell 1 percent in October,
and closed sales were down almost 20 percent. A Bank director in Billings, Mont.,
reported that home sales were down slightly from a year earlier, but dollar
volumes were down more. Preliminary results indicate more than three-quarters
of respondents to the Minneapolis Fed's business outlook poll (November) expect
housing starts to be down in their communities this year, but most don't expect
that to adversely affect their sales, profits, investment or hiring.
Growth was evident in the manufacturing sector. Based on preliminary results
from the Minneapolis Fed's annual business outlook poll, respondents from the
manufacturing sector expect growth in company sales, employment and capital
investment in 2007. Meanwhile, a November survey of purchasing managers by Creighton
University (Omaha, Neb.) indicated increased manufacturing activity in North
Dakota and Minnesota and reduced activity in South Dakota. A brewery in western
Wisconsin is building a new plant. In South Dakota, a visual communication systems
manufacturer plans to add a facility.
Energy and Mining
Activity in the energy and mining sectors grew since the last report. Oil and
gas exploration and production in the District were level with previously reported
amounts. However, the alternative energy industry, including wind, biodiesel,
and ethanol, continued to expand at a solid pace. In addition, $5 billion worth
of new traditional power plants are planned to supply the mines and other industry
in northern Minnesota. Mining production remained at near-capacity across the
Agricultural activity increased since the last report. Higher corn and soybean
prices were welcomed by District crop producers. Good harvests were reported
in many parts of the District. In Minnesota, the corn harvest was a strong 1.1
billion bushels, soybean production was up from last year and a record amount
of sugar beets was produced. In addition, record harvests of corn and soybeans
were forecast in North Dakota. Meanwhile, most of the winter wheat crop has
emerged in good to excellent condition. However, preliminary results of the
Minneapolis Fed's third-quarter (October) agricultural credit conditions survey
indicate that overall agricultural income will be down in the fourth quarter
of 2006 due to higher input costs.
Employment, Wages, and Prices
Signs of a tightening labor market were noted. According to preliminary results
of the Minneapolis Fed's business outlook poll, 58 percent of respondents describe
securing workers as a challenge or serious challenge. Two boat manufacturing
plants in Minnesota are expected to add 140 jobs as a result of company restructuring.
Businesses in western Minnesota are having difficulty hiring temporary employees,
and a shortage of welders was reported in South Dakota.
However, in Minnesota almost 300 jobs at a department store's head offices
and a distribution center will be eliminated by next spring, a vending machine
manufacturer recently laid off 200 workers, a printing services provider will
close a plant resulting in 72 job losses and a newspaper plans to eliminate
about 40 positions. In the Upper Peninsula of Michigan, a manufacturer announced
plans to lay off 170 workers.
Overall wage increases were moderate. The aforementioned business outlook
poll showed nearly three-quarters of respondents expect wages and salaries in
their community's businesses to increase between 2 percent and 3 percent. However,
a member of the Advisory Council on Small Business and Labor reported that wages
at mines in Montana were up over 10 percent and generous signing bonuses have
Overall price increases were modest as prices for fuel declined. Prices for
many fuels and natural gas were down since the last report. Mid-November gasoline
prices in Minnesota were about the same as they were at the end of September,
but down 81 cents per gallon since August. Price increases were noted for roofing
shingles and foam rubber.