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Ninth District--Minneapolis

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The Ninth District economy grew at a sluggish pace since the last report. Decreased activity was noted in tourism, services, residential construction and real estate, and agriculture. Modest increases in activity were noted in consumer spending, manufacturing, energy, mining and commercial real estate. Labor markets were flat overall, while wages increased moderately. Significant price increases were noted for some metals, food, fertilizer, airline tickets and fuel.

Consumer Spending and Tourism
Overall consumer spending was soft. A bank director noted that restaurant sales were down from a year ago. Same-store sales at a major Minneapolis-based retailer are estimated to be flat in May compared with a year earlier. Recent sales and traffic at a Minneapolis area mall were on par with last year's relatively high levels, according to the mall manager. Recent sales were level to up slightly compared with a year ago at a Montana mall, while Montana bank directors noted that sales at a variety of retailers in western Montana were generally flat. A North Dakota mall reported that April sales were up 4 percent compared with a year ago; traffic was strong over Memorial Day weekend. Traffic from Canada to District retailers near the border continued at a strong pace; sales of used cars to Canadians have increased substantially. Recent motor vehicle sales at a South Dakota dealer were up from a year ago.

Spring tourism was slow in a number of areas due to cool, wet weather, but officials were cautiously optimistic for the summer season. Visits to northwestern Wisconsin were down from a year ago, but tourism businesses are anticipating a solid summer season, according to a chamber of commerce representative. Tourism activity was slow over Memorial Day weekend due to cold weather in western South Dakota. An official in Montana noted that advanced reservations related to summer travel were strong. A representative of a Minnesota-based travel agency noted that corporate travel sales were up, while leisure travel was down from a year ago. 

Activity in the professional business services sector contracted slightly. Preliminary results of the Minneapolis Fed's annual survey of professional services companies in May showed that profits and employment decreased from a year ago and are expected to remain flat over the next year.  Respondents indicated that higher input costs and selling prices are pervasive across the sector.

Construction and Real Estate
Commercial construction activity increased slightly since the last report. Developers were preparing to break ground on a 185-acre research complex in Sioux Falls, S.D., and a number of new hotels were under construction. Residential construction decreased. Units permitted for construction in April fell 67 percent from a year earlier in the Minneapolis-St. Paul area and 37 percent in Sioux Falls.

Commercial real estate was up modestly. The western portion of the District continued to expand. Mixed reports were noted in the Minneapolis-St. Paul area as warehouse activity increased, but recent office and manufacturing absorption was down. Market conditions for residential real estate continued to deteriorate. April pending sales in the Minneapolis-St. Paul area were down more than 6 percent. Home prices fell by almost 4 percent statewide in Wisconsin.

Overall manufacturing activity increased slightly since the last report. A May survey of purchasing managers by Creighton University (Omaha, Neb.) indicated a mild increase in activity in Minnesota and the Dakotas. Several contacts noted that capital expenditures are increasing in part due to new federal tax incentives. In South Dakota an energy equipment maker plans to expand its research facilities. In North Dakota, a farm equipment manufacturer is expanding its production facility. In Minnesota, a producer of water pumps is increasing capital investment and a technology company is constructing a new production facility. However, a Minnesota manufacturer of commercial construction materials reports somewhat weakening demand over the past two months.

Energy and Mining
Activity in the energy and mining sectors increased since the last report. Robust oil and gas exploration and production continued in the District. A large wind farm expansion was announced in North Dakota. A dual purpose biodeisel plant is planned in Minnesota. Exploration, permitting and construction in the mining industry continued at a solid pace since the last report.

Agricultural conditions weakened since the last report. Cold, wet conditions delayed planting and development of corn and soybeans in the eastern part of the District. Meanwhile, drought conditions were severe in western North Dakota and eastern Montana. The U.S. Department of Agriculture expects corn, soybean and wheat prices to increase, and milk and hog prices to fall in 2008. Both farmers and ranchers are concerned about higher input costs eroding profits.

Employment, Wages, and Prices
Labor markets were flat overall with a number of layoff announcements balanced by reports of relatively tight employment in some areas. In Minnesota a medical devices producer recently announced plans to cut 350 jobs and a company that manufactures life vests and water sport products recently announced plans to close a plant that employs over 100 workers. A producer of computer diskettes will close a North Dakota plant that employs 390 workers by the end of the year, earlier than originally planned. The State of Minnesota reported that the percentage of unemployed workers who ran out of unemployment benefits without finding a job was higher than a year ago. Recent business was generally slower at a temporary employment agency in Minnesota compared with a year ago; however, demand to help companies fill full-time openings for existing positions remained relatively strong. In contrast, a number of contacts in the Dakotas and Montana reported difficulty finding qualified workers.

Overall wages increased moderately. Preliminary results of the Minneapolis Fed's survey of professional services companies indicate wages and benefits are expected to increase 2.4 percent per worker over the next 12 months. However, recent total compensation package agreements for skilled construction workers increased 5 percent in Minnesota.

Significant price increases were noted for some metals, food, fertilizer, airline tickets and fuel. Prices for steel and aluminum were up 35 percent and more than 15 percent, respectively, over a year ago with most of the increase occurring in the past six months. A Montana bakery noted that flour prices increased 130 percent over the past three months, which led to a 25-cent to 50-cent increase in the price of a loaf of bread. Phosphate fertilizer prices were almost twice as high as last year, according to a bank director. A major Minnesota-based airline raised ticket prices in May in response to increased fuel costs.  In contrast, lumber prices were down more than 10 percent from a year ago.

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Last update: June 11, 2008