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Ninth District--Minneapolis

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The contraction in the Ninth District economy moderated since the last report. Modest decreases in activity occurred in the consumer spending, services, residential construction and real estate, agriculture and manufacturing sectors. More substantial drops in activity were noted in commercial construction and real estate, and in the energy and mining sectors. Spring tourism activity was mixed, and residential real estate saw more activity. Labor markets continued to weaken, and wage increases were modest. Price increases remained subdued.

Consumer Spending and Tourism
Consumer spending remained soft, but improved somewhat from the previous few months. A major Minneapolis-based retailer reported that same-store sales in April were essentially flat compared with a year earlier. Recent sales at a Minneapolis area mall were about even with a year ago, as a decrease in sales of luxury items was offset by an increase in sales of more basic goods. Business at a North Dakota mall ran flat to mildly down in May, according to the mall manager. A Montana mall manager noted that sales in April were down from a year ago, but more stores were posting increases than during the previous few months. A Montana pawnshop owner noted a 25 percent increase in items pawned during the first four months of 2009 compared with a year ago. Meanwhile, an executive at a food processing company in Minnesota noted that sales of refrigerated party trays were strong.

Representatives of auto dealers associations in the District reported that a number of domestic dealerships will be closed in their states. A representative of an auto dealers association in South Dakota noted that dealerships were selling some vehicles, but consumers were not buying as they have in the past.

Tourism activity was mixed. According to results of a survey by Minnesota's tourism department, 57 percent of lodging businesses saw revenue and occupancy fall in April and May compared with the same period a year ago. Spring tourism activity in western South Dakota was up slightly from a year ago, but advance bookings for summer lodging were lower than last year. Tourism activity over Memorial Day weekend in northwestern Wisconsin was strong, and summer reservations at campgrounds and resorts were at solid levels, according to a representative of a chamber of commerce.

Services sector activity decreased overall since the last report. Preliminary results of the Minneapolis Fed's annual survey of professional services companies in May showed decreased levels of sales revenue, employment and profits from a year ago; profits are expected to fall further over the next year. Respondents indicated that labor is more available, but input costs are increasing. Architects reported continued weak demand for their services.

Construction and Real Estate
Commercial construction was anemic. A Minnesota commercial contractor said new construction activity was down significantly from the previous year. Nonresidential permits fell 75 percent in value in Sioux Falls, S.D., from a year earlier. Residential construction was steady at low levels. The value of new housing permits in the Minneapolis-St. Paul area increased in April from the previous month, but was down 14 percent from the same month a year earlier and 72 percent from two years ago. Residential construction activity was about even with last year in Rochester, Minn.

Commercial real estate activity was very slow. The Minneapolis-St. Paul office vacancy rate increased in the first quarter of 2009 from the previous quarters, and is expected to increase further in the second quarter, according to a commercial real estate firm based there. The same firm expects retail vacancy to increase and industrial vacancy to remain stable. The residential real estate market saw more activity. Late May home sales in Minneapolis-St. Paul were up more than a third from the same period a year earlier, while new listings were down more than 10 percent.

Manufacturing activity decreased since the last report. A May survey of purchasing managers by Creighton University (Omaha, Neb.) indicated that activity declined in Minnesota and the Dakotas. In Montana, several saw mills plan to shut down. A North Dakota construction equipment manufacturer cut production in response to weak demand. A Minnesota electronic components manufacturer reduced production. Some manufacturing contacts from various industries reported some stability of demand after huge drops earlier in the year. Window makers reported increased demand, and a Montana paper mill restarted a production line.

Energy and Mining
Activity in the energy and mining sectors continued to fall. Late May oil and gas exploration tumbled from early April. However, a number of wind energy projects are moving forward. Several District mines curtailed production and shuttered operations. However, District gold mines are at near-capacity production.

Agricultural conditions were hampered by adverse conditions since the last report. Storms caused havoc on calving, as many contacts reported significantly higher than normal deaths. Farmers in the Dakotas were forced to delay plantings due to very wet fields. Meanwhile, drought conditions persisted in western Wisconsin.

Employment, Wages, and Prices
Labor markets continued to weaken. In Minnesota, a medical devices firm recently announced plans to eliminate 600 jobs by the end of June, and a cabinetmaker laid off 200 employees during the first few months of 2009. Two health care providers in Minnesota recently announced plans to cut 240 and 100 jobs, respectively. Meanwhile, a Minnesota hospital will eliminate 75 to 100 positions by the end of June. In North Dakota, a construction equipment manufacturer announced plans to cut 250 jobs, and a business travel call center recently closed, affecting 100 jobs. According to the Minnesota Department of Employment and Economic Development, job seekers are taking 20 weeks to find new jobs compared with 13 weeks a year ago. The South Dakota Labor Department noted that preliminary indications for summer employment in 2009 were uncertain, students could find themselves competing with laid-off primary wage earners.

Wage increases were modest. Businesses responding to the Minneapolis Fed's services survey reported expected wage increases at their firms of 1.8 percent and benefit increases of 1.5 percent over the next four quarters.

Price increases remained subdued. A representative of a construction company in South Dakota noted that costs this spring were about the same as in 2008; lower lumber and drywall prices were balanced by slightly higher prices for fixtures, wiring and components. In the aforementioned services survey, 20 percent of respondents expect selling prices to decrease during the upcoming year, while 21 percent expect selling prices to increase. However, Minnesota gasoline prices were up almost 50 cents per gallon at the end of May compared with April, but still $1.38 lower than a year ago.

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Last update: June 10, 2009