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Ninth District--Minneapolis

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The Ninth District economy contracted further since the last report. Activity dropped in consumer spending, tourism, services, construction and real estate, manufacturing, energy and mining. However, agricultural conditions improved. Employment continued to decline. Wage increases were modest, with some pay freezes reported. Prices were generally level during the reporting period, as some price decreases continued to moderate.

Consumer Spending and Tourism
Overall retail sales were lower than a year ago. A major Minneapolis-based retailer reported that same-store sales in February were down 4 percent compared with a year earlier, and a major Minnesota-based electronics retailer reported that recent same-store sales fell nearly 5 percent. A mall manager in Montana reported that sales were slow in February compared to a year ago and picked up only marginally in March. Recent sales were down 10 percent at a Minneapolis-St. Paul area restaurant chain from the same period last year. In contrast, February comparable-store sales were up slightly at a North Dakota mall from a year ago.

A representative of an auto dealers association in Minnesota noted that car sales saw a seasonal bounce this spring; nevertheless, sales at many dealerships were more than 30 percent lower than last year.

Tourism was down slightly compared with a year ago. In the Upper Peninsula of Michigan, lodging tax receipts during the winter season were down more than 10 percent from a year earlier, according to an official. In contrast, a Minnesota-based travel agency said that sales for leisure travel were up 5 percent in early 2009 compared with a year ago; however, corporate travel dropped from last year, as some companies have placed a freeze on travel.

Services sector activity decreased overall since the last report. Architects reported very weak demand for nongovernmental projects. Various professional services firms reported that customers are delaying payment and asking for price reductions. Contacts from the information technology, education and medical sectors reported slightly increased activity. Appraisers and mortgage companies noted continued strength in the refinance business.

Construction and Real Estate
Commercial construction slowed. February nonresidential permits fell by a third in value in Sioux Falls, S.D., from a year earlier. A developer in Minneapolis-St. Paul said several projects there have been canceled or put on hold. Residential construction remained slow. The value of housing permits in the Minneapolis-St. Paul area was down 44 percent in March from a year ago. February residential permits declined in Rochester, Minn., and Fargo, N.D.

Commercial real estate market conditions were stagnant. A contact at a Minneapolis commercial real estate firm said potential tenants are holding off on leasing decisions due to uncertainty about future conditions. Residential real estate markets were mixed. Recent weeks have seen increases in home sales in Minneapolis-St. Paul from last year's lows; however, sale prices remain lower. A real estate agent in Fargo, N.D., said market conditions there were stable, though late-March flooding put activity on hold. The market for high-end homes in the Flathead Valley area of Montana has fallen sharply, shown by a record high level of inventory and declining prices.

Manufacturing activity decreased since the last report. A March survey of purchasing managers by Creighton University (Omaha, Neb.) indicated that activity declined sharply in Minnesota and the Dakotas. A broad base of manufacturers cut back on production due to very weak orders. A diversified manufacturer noted huge declines in every segment except the municipal market.

Energy and Mining
Activity in the energy and mining sectors fell significantly since the last report. Late March oil and gas exploration tumbled from mid-February. However, several wind energy projects are moving forward. District iron ore production fell, as several mines announced plans to shut down temporarily. However, a Montana gold mine is "going strong," according to an official.

Agricultural conditions improved since the last report. Farmers and ranchers noted decreased input costs for diesel, fertilizer and some chemicals. Due in part to higher sugar prices, farmers in the district intend to plant more sugarbeets this year. However, they plan to plant less wheat, corn and soybeans in 2009 compared with 2008.

Employment, Wages and Prices
Employment continued to decline. In February employment was down 3.1 percent and 3.3 percent, respectively, in Minnesota and Wisconsin compared with a year ago. Unemployment rates reached 25-year highs in those states. Employment levels were also down in Montana and South Dakota, but more modestly, while year-over-year employment levels were slightly positive in North Dakota. A manufacturer recently announced plans to lay off several hundred employees in Minnesota. In western Wisconsin, a company that makes components for diesel engines announced layoffs of almost 130 workers. As the oil drilling boom in western North Dakota and eastern Montana recently waned in response to lower oil prices, hundreds of people have lost their jobs at least temporarily, according to a representative of the North Dakota Petroleum Council. February claims for unemployment insurance were up over 90 percent in Minnesota compared with a year ago. A staffing company survey of businesses in the Minneapolis-St. Paul area showed that as many respondents plan to hire workers as plan to lay off workers during the second quarter.

In contrast, a local economic development official in Rochester, Minn., noted that the area's large health care sector remained relatively solid, which has helped keep the area's unemployment rate lower than the state's. In addition, a sawmill recently restarted in Montana, reinstating almost all of the mill's 130 employees.

Wage increases were modest, with some pay freezes reported. A union that represents faculty at Minnesota's community and technical colleges recently tentatively agreed to a two-year salary freeze. A Minneapolis area health care provider announced a wage freeze for most of its noncontract employees. According to respondents to a recent St. Cloud (Minn.) Area Business Outlook Survey, 21 percent expect to increase employee compensation over the next six months, while 6 percent expect to decrease compensation; last year 37 percent expected increases, while 2 percent expected decreases.

Prices were generally level during the reporting period, as some price decreases continued to moderate since the last report. Minnesota gasoline prices at the end of March inched up about 10 cents a gallon since mid-February, but were $1.14 less than a year ago. Lumber prices continued to decrease since the last report and were almost 10 percent lower than a year ago. A number of copper, steel and aluminum product prices continued to decline slightly. In addition, fertilizer prices softened since the last report.

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Last update: April 15, 2009