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Federal Reserve Districts

Ninth District--Minneapolis

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Ninth District economic activity slowed since the last report. Decreased activity was noted in consumer spending, construction and real estate, and agriculture. Manufacturing was mixed. Increases in activity were noted in tourism, services, and energy and mining. Labor markets weakened since the last report. Overall wage increases were moderate, while prices for some products decreased. Consumer Spending and Tourism. Consumer spending declined since the last report. September same-store sales at a major Minneapolis-based retailer were expected to have decreased 2 percent compared with a year ago. An apparel retailer based in Minnesota noted that recent slow mall traffic was hampering sales. Two restaurants and a coffee shop recently went out of business in St. Cloud, Minn. A representative of an auto dealers' association in Montana noted that vehicle sales have slowed, particularly among SUVs and trucks with lower gas mileage. In addition, some dealers noted that customers were having difficulty obtaining credit. A Minnesota auto dealer noted that September sales were down 20 percent from a year ago. In a late September e-mail survey of District business contacts, about half of retailers noted that sales decreased recently, while 30 percent reported increases.

In contrast, traffic at a Minneapolis area mall improved in August and September. A mall manager in Bismarck, N.D., reported solid sales in August and September. Retail sales were up in the Upper Peninsula of Michigan and Fargo, N.D., in part due to Canadian shoppers.

Tourism activity was up slightly from a year ago; however, spending was soft in some areas. A bank director noted that late summer and early fall tourism conditions in northern Minnesota were solid. A South Dakota tourism official reported that visits in September were up about 2 percent compared with a year ago, although camping and retail spending were soft. Restaurant and hotel usage in southwestern Montana were on par with last year, but overall tourism-related spending was lower. A Minnesota-based travel agency is expecting weak business through the rest of 2008 because of slow corporate and leisure travel.

Activity in the services sector was up slightly since the last report. According to the e-mail survey, 46 percent of service industry contacts reported recent sales increases, while 32 percent saw decreased sales. Professional business firms were the most optimistic, while architects and financial services firms were the most pessimistic. Meanwhile, 24 percent of the respondents from financial services firms reported less credit availability compared with 2 percent who reported increased credit availability.

Construction and Real Estate
Construction activity decreased since the last report. According to the e-mail survey, 78 percent of construction industry contacts said recent sales at their firms were down; 11 percent reported increases. A Minneapolis-St. Paul commercial developer mentioned several large projects that were halted in mid construction. Several contractors reported reluctance to offer bids due to uncertainty about future materials prices. The home-building slump continued. The value of August residential permits was down 15 percent and 36 percent, respectively, in Minneapolis-St. Paul and Sioux Falls, S.D., from a year earlier.

Overall real estate activity was slower. Among industry respondents to the e-mail survey, 43 percent said recent sales were down and 14 percent said they increased, while 48 percent said credit was less available and none reported more credit availability. In contrast, a commercial broker in Bismarck, N.D., said the market for office and industrial space there remained strong. Residential real estate remained slow. Sales in most District markets were down. However, pending sales in the Twin Cities at the end of September were above year-earlier levels, and about level with two years ago.

Overall manufacturing activity was mixed since the last report. A September survey of purchasing managers by Creighton University (Omaha, Neb.) indicated increased activity in the Dakotas and decreased activity in Minnesota. According to the recent e-mail survey, 41 percent of the manufacturing industry contacts reported recent sales increases, while 38 percent saw decreased sales. Several lumber mills across the District recently cut production due to decreased demand. Production is down significantly at a Minnesota construction materials producer. In contrast, a Minnesota machining company said, "Business is good and growing." A Montana pipe maker is expanding production due to increased demand from the energy industry. A South Dakota mining equipment maker is adding production space.

Energy and Mining
Activity in the energy and mining sectors increased since the last report. Oil and gas exploration continued at a strong pace. Expansions of several large wind farms are under way across the western portion of the District. Growth in the mining industry continued since the last report; in Minnesota, a large ore-to-steel plant broke ground and a planned copper mine might break ground next year.

Agricultural conditions decreased from a year ago. Prices for hogs and many District crops decreased from the last report. For most of the major District crops, harvest is behind the pace of a year ago. However, solid yields and production are expected although not as large as year ago levels.

Employment, Wages and Prices
Labor markets weakened since the last report. Minnesota's unemployment rate reached 6.2 percent in August, the highest rate since the mid-1980s. A Minnesota temporary work services agency noted that billed hours were down about 15 percent in September compared with a year ago. A county in Minnesota has eliminated more than 200 positions due to impending budget shortfalls. An airplane manufacturer eliminated 100 jobs in Minnesota and North Dakota. A Minnesota manufacturing firm related to the housing industry recently laid off 45 full-time employees. Two Montana timber mills recently laid off about 35 workers each. The e-mail survey showed that 24 percent of respondents expect to hire additional workers during the fourth quarter, while 23 percent expect to decrease staff.

Overall wage increases were moderate. A temporary work services agency noted that employee wages were stable. According to respondents to a recent St. Cloud (Minn.) Area Business Outlook Survey, 66 percent expect no change in employee compensation over the next six months.

Prices for some products decreased. Minnesota gasoline prices were down 55 cents per gallon from their peak in July, but were still 72 cents per gallon higher than a year ago. Prices for copper and aluminum decreased during the past month. A Minnesota restaurant owner noted that prices for beef, chicken and dairy were still at high levels. While health insurance rates were up about 6 percent compared with a year ago, the increase was smaller than the past few years. Winter heating bills in Minnesota are expected to increase 10 percent to 15 percent.

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Last update: October 15, 2008