July 23, 2008 Federal Reserve Districts Ninth District--Minneapolis

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The Ninth District economy grew slightly since the last report. Modest increases in activity were noted in tourism, mining and commercial real estate. Activity in manufacturing, commercial construction, agriculture and energy was mixed. Decreased activity was noted in services and residential construction and real estate, while consumer spending was sluggish. Overall labor markets softened slightly since the last report; nevertheless, some industries reported difficulty finding qualified workers. Wages increased moderately, while significant price increases were noted for fuel and energy; lumber prices were lower. Consumer Spending and Tourism Overall consumer spending was sluggish. A major Minneapolis-based retailer reported same-store sales in June were up 0.4 percent compared with a year earlier. A number of Minnesota retailers noted weakened consumer spending, and some indicated that funds from the economic stimulus checks were being used to buy fuel and groceries rather than discretionary purchases. A Minnesota retail property manager noted that traffic and sales appeared to be down during the past few months. In addition, two restaurant contacts noted that business was slow. Recent sales and traffic at a Minneapolis area mall were up slightly over a year ago; traffic over the Fourth of July weekend was solid, according to the mall manager. An auto dealers association in Minnesota reported that new retail car and light truck registrations are expected to fall almost 4 percent in 2008 compared with 2007. A representative of the association noted that sales and traffic at dealerships were very slow in June across all types of vehicles. In contrast, an auto dealer in Montana said that sales were on par with a year ago for foreign cars with high fuel efficiency. Tourism activity increased. A bank director noted that recent visitor numbers were up Montana. Tourism officials in western South Dakota noted solid activity during the early part of the summer season. A Minnesota-based travel agent noted that leisure travel was still up, although some customers were electing to travel closer to home instead of going abroad. The number of international tourists traveling to Minnesota increased. Crossings of the International Bridge in Sault Ste. Marie in the Upper Peninsula of Michigan were up about 3 percent in June compared with a year ago. Services Activity in the services sector was down slightly. Contacts from information technology reported reduced activity, especially for support of the financial services industry. District contacts from the accounting profession expected flat revenues, profits, prices and productivity over the next 12 months. However, health care service firms continued to expand. Construction and Real Estate Commercial construction was mixed. Some contractors noted that the number of open bids was down and that competition has intensified. A 200-acre biotechnology research complex was under development near Rochester, Minn. The value of June commercial building permits in Sioux Falls, S.D., was up 5 percent from a year ago. Residential construction remained slow. June residential permits were down 51 percent from year-earlier levels in Minneapolis-St. Paul; permits were flat in Fargo, N.D. Commercial real estate activity increased slightly. Contacts reported rent increases and positive absorption in the Minneapolis-St. Paul area office market. One of the region's largest office towers in downtown Minneapolis was put up for sale. However, the retail property sector remains weak throughout the District. The residential real estate market continued its slump. Pending home sales in Minneapolis-St. Paul were down more than 3 percent in June compared with a year earlier; average sale prices fell 12 percent. Reports indicated that home foreclosures recently increased in Rapid City, S.D. Manufacturing Overall manufacturing activity was mixed since the last report. A June survey of purchasing managers by Creighton University (Omaha, Neb.) indicated increased activity in the Dakotas and slightly decreased activity in Minnesota. Wind turbine and parts makers in South Dakota and Minnesota reported strong demand. A Minnesota boat maker reported decreased orders. Energy and Mining Activity in the energy sector was mixed, while mining sector activity increased since the last report. Oil and gas exploration and production were steady at high levels in the District. Expansion of wind farms continued. However, several ethanol plants reduced production and planned expansions were delayed due to higher input costs. Growth in the mining industry continued since the last report, as construction on a new mine began in Montana and an iron ore processing line reopened in Northern Minnesota. Agriculture Agricultural conditions were mixed. Crop progress was behind last year and the five-year average for District corn and soybean producers. Almost all of the District was free from drought. Most of the Montana and South Dakota small grain crops were rated good or excellent. The majority of pastureland was rated good or excellent, although cattle producers were concerned about higher input costs. Employment, Wages and Prices Overall labor markets softened slightly since the last report; nevertheless, some industries reported difficulty finding qualified workers. In Minnesota, an airline plans to reduce employment and a travel and hospitality company announced plans to cut 200 jobs due to a smaller market for business travel. A hospital in North Dakota recently revealed plans to lay off 100 workers. A temporary staffing agency survey of Minneapolis-St. Paul businesses showed that 37 percent of respondents expected to hire workers during the third quarter, while 29 percent expected to reduce staff. In last year's survey, 44 percent expected increased hiring and 11 percent anticipated decreases. In contrast, some custom manufacturers in Minnesota and the Upper Peninsula were concerned about attracting qualified workers to fill open positions. In North Dakota, difficulty finding qualified trades workers for jobs at coal operations is expected to increase during the next few years as more construction projects come online and retirements increase. Wage increases were moderate. Among respondents to a recent St. Cloud (Minn.) Area Business Outlook Survey, 35 percent expected employee compensation to increase over the next six months, down from 38 percent in last year's survey. Significant price increases were noted for fuel and energy; while lumber prices were lower. A number of fuel surcharges were being placed on top of transportation and some raw materials prices. Minnesota gasoline prices at the end of June were $1 per gallon more than a year ago. Recent jet fuel and diesel fuel prices were about 75 percent higher. Residential customers of a Montana natural gas utility were recently paying about 50 percent higher prices for natural gas compared with a year ago. In contrast, prices for lumber were down about 3 percent to 4 percent. Return to top St. Louis Kansas City